By TIOL News Service

BANGALORE, MAY 17, 2014: THE issue involved is whether the appellant is eligible for the benefit of credit of service tax paid on Group Health Insurance Policy obtained by them in respect of their employees and their family members.

The appellant submitted that the fact that family members are covered cannot be a reason for the department to deny the credit as the provisions of Employees State Insurance Act mandates that not only employees but also their family members are eligible for getting treatment in the ESI hospital. Reliance is placed on the decision of the Larger Bench in the case of CCE, Mumbai-V Vs.  GTC Industries Ltd. - 2008-TIOL-1634-CESTAT-MUM-LB to submit that once the expenses incurred formed part of cost of production, credit has to be allowed.

The Revenue representative cited the Tribunal decision in Semco Electric Pvt. Ltd. - 2011-TIOL-965-CESTAT-MUM and submitted that the benefit of credit of service tax in respect of Group Health Insurance would be available only in respect of the insurance cost attributable to employees and not to the family members.

The Bench inter alia observed –

+ The fact that the family members of the employees are treated in the ESI hospital is not of relevance for the purpose of examination of admissibility of credit of service tax.

+ Section 38 of the ESI Act requires all employees to be insured and it is not obligatory for an employer to insure the employees’ family. When an employee is covered by ESI Act no doubt his family is also eligible. However it does not mean that there is a statutory obligation on an assessee to provide insurance coverage to the families of employees and Section 38 requires only employees to be covered. Therefore, the submission relating to ESI Act cannot be accepted.

In the matter of reliance placed on the LB decision (supra), the Bench opined that the first requirement to be seen is whether the credit is admissible as per the definition; at the threshold if the credit is not admissible, the question of examination as to whether such expenditure forms cost of production does not arise. Inasmuch as service tax paid on Group Health Insurance for the family of the employees can in no way be held to be relatable to the business of manufacture of an assessee.

As regards invocation of the extended period of limitation, the appellant submitted that since the Commissioner (Appeals) had waived penalty under Rule 15(2) of CCR, 2004 r/w s. 11AC of CEA, 1944, the question of invocation of extended period would not arise.

The Bench agreed with this submission and accordingly held that the demand has to be limited to the normal period.

Lastly, the appellant submitted that the lower authorities had denied the entire credit whereas in view of the foregoing they are entitled to take the credit of the service tax in respect of Group Health Insurance for employees at least.

The Bench agreed and held that the tax attributable has to be computed and so the matter needs to be remanded to the adjudicating authority.

In fine, the matter was remanded with a direction to re-quantify the demand pertaining to the normal period and the appellant was directed to furnish the data required for the said computing.

The appeal was allowed by way of remand.

(See 2014-TIOL-786-CESTAT-BANG)