CENVAT - If excise duty paid on Tugs & Barges are not available as credit, it does not stand to reason that service tax paid on insuring these goods should be available as credit under CCR 2004: CESTAT
By TIOL News Service
MUMBAI, APR 15, 2015: THE Commissioner (Appeals) upheld the denial of input service credit to the appellant to the extent of Rs.25,49,607/- and imposition of penalty and interest.
Before the CESTAT the appellant submitted that the credit has been taken of service tax paid on various insurance policies in respect of capital assets of the appellant company and the period of credit is from April 2011 to August 2012; that these capital assets are required for the running of the factory and, therefore, the services availed fall within the definition of “input service” as defined in Rule 2 (l) of the CCR, 2004. It is also agreed that in respect of the credit taken on life insurance, health insurance for the employees and their families, in view of the specific exclusion under Clause (C) of the said Rule, they will not be entitled for the credit, however, in respect of other insurance services received they are rightly entitled for the credit. Moreover, in a case where interpretation of statute is involved, the question of imposition of any penalty would not arise at all. Reliance is placed on the decisions in the cases of Ultratech Cement 2010-TIOL-745-HC-MUM-ST, Federal Mogul Goetze (India) Ltd. - 2013-TIOL-1171-CESTAT-DEL, Finolex Cables Ltd., Vs. CCE, Pune-I – 2009-TIOL-736-CESTAT-MUM, The India Cements Ltd., - 2011-TIOL-681-CESTAT-MAD.
The AR submitted that input service credit has been taken not only in respect of the assets used within the factory but also in respect of tugs and barges which are used for transportation of raw materials from the mother vessel to the jetty and in view of the decision of the Tribunal in appellant's own case - 2010-TIOL-900-CESTAT-MUM the appellant would not be eligible for the benefit of service tax paid on services in relation to the tugs and barges.
The appellant, in their rejoinder, submitted that the said decision of the Tribunal has been challenged before the Bombay High Court and the appeal has been admitted [CEA No. 102 of 2010] and therefore, the said decision is in jeopardy.
The Bench observed -
+ Various insurance policies taken by the appellant falls into the category of Marine Hull Policy, Public Liability Insurance Policy, Standard Fire and Special Perils Policy, Burglary Standard Insurance Policy, Marine Cargo Open Policy, Industrial all Risks Insurance Policy, Marine War Insurance Policy, Money Insurance Policy and Contractors Plant and Machinery Insurance Policy.
+ While Marine Hull Policy, Marine Cargo Open Policy and Marine War Insurance Policy pertain to tugs and barges used by the appellant in transportation of materials from the mother vessels to the jetty, the other insurance policies pertain to the insurance of the capital assets used within the factory except in the case of Contractors Plant and Machinery Insurance Policy. The nexus between the assets utilised within the factory is clearly discernible, the same cannot be said in respect of goods used outside the factory.
+ As regards the tugs and barges in respect of which marine policies have been taken, this issue has been considered in the Vikram Ispat wherein it was held that there was no nexus between the impugned services with manufacture/clearance of goods; therefore, they are not input service on which the assessee could get benefit of credit of service tax.
+ Though this judgment has been challenged and admitted by the High Court, there is no stay obtained against this decision and unless it is set aside, the said decision would prevail. Therefore, the eligibility to Cenvat credit on marine insurance policies taken in respect of tugs and barges is clearly not admissible.
+ There is one more reason for coming to this conclusion. The CCR, 2004 does not provide for Cenvat Credit of excise/CVD credit in respect of tugs and barges under the category of capital goods. If excise duty paid on these goods they are not available as credit, it does not stand to reason that service tax paid on insuring these goods should be available as credit under CCR 2004.
+ Therefore, Cenvat credit of the service tax paid on assets of the appellant used outside the factory premises is not clearly admissible as they are neither inputs nor capital goods. Similarly, in respect of service tax paid on life insurance and medi-claim insurance for the employees/families the same is specifically excluded in terms of clause (C) of Rule 2 (l) of CCR, 2004 and therefore, the appellant would not be entitled for credit on the same.
+ As regards the insurance done on Contractors Plant and Machinery Insurance Policy, it is the contractors who are undertaking the job work for the appellant. It is not understood how this can be an eligible to input service to the appellant. For the contractor or the job worker it may be an input service but not to the appellant who does not own these goods.
After observing as above, the matter was remanded to the adjudicating authority for ascertaining the entitlement of service tax paid in respect of items as discussed in the order and allowing the same to the appellant. It is also viewed that since it is a case of interpretation of CCR, the question of imposing of any penalty does not arise at all.
The appeal was disposed of.
(See 2015-TIOL-674-CESTAT-MUM)
