CENVAT - Insurance Services - Rule 2(l) - When cost of any service is included to determine valuation of final product, CENVAT credit cannot be denied of such tax paid on services: CESTAT
By TIOL News Service
MUMBAI, FEB 03, 2016: REVENUE is in appeal against the orders passed by the CCE & ST, LTU, Mumbai.
The relevant facts are that the respondent is availing CENVAT credit of service tax paid on the services of insurance for their plant and machinery, inputs, finished goods, equipment, vehicles, insurance of residential building of factory/township etc.
Revenue authorities were of the view that such insurance since not being in relation to the manufacture and clearances of final products and not integrally connected with the activity of the assessee, they are not eligible to avail CENVAT credit.
SCNs were issued and the demands were confirmed by the adjudicating authority. Aggrieved by such an order, the assessee preferred an appeal before the Tribunal and the same was disposed of by the CESTAT at stay stage itself vide order No. dated 03.03.2014 - 2014-TIOL-768-CESTAT-MUM by setting aside the order-in-original and remanding the matter back to the adjudicating authority.
The Bench had inter alia held -
CENVAT - Prima facie, the costs of various services availed forms part of the assessable value of the goods manufactured and sold by the appellant - Therefore, there is no reason to deny CENVAT Credit on the various input services availed by the appellant for undertaking their business operations - CA certificates have been furnished certifying the above & if the department does not want to place reliance on these certificates, under Section 14AA of the Central Excise Act, they can conduct special audit, which powers the department has not invoked - Matter remanded: CESTAT
In the present proceeding, the order-in-original in Appeal No. E/85238/15 is passed in denovo adjudication while order-in-original in Appeal No. E/86178/15 is passed in regular proceedings. In both the orders, the adjudicating authority has dropped the proceedings initiated by the show-cause notices for the demand of CENVAT credit availed by the assessee.
The AR submitted that the insurance which has been taken by the assessee-respondent were in respect of various machineries, materials and site manufacturing items as also in respect of the factory building and township; that the said insurance does not play any active role and has no direct nexus to the manufacturing process of the final goods of the respondent-assessee hence it does not satisfy the definition of input service as provided in Rule 2(l) of CCR, 2004. It is emphasized that the orders are required to be set aside and the allegations in the SCNs be confirmed.
The respondent assessee submitted that the Tribunal order dated 03.03.2014 has been executed by the lower authorities. Inasmuch as the cost of service tax paid on the insurance has been included in the cost of the final products manufactured and cleared by them, is the finding, which has not been disputed. Furthermore, in their own case vide order dated 15.10.2015 - 2015-TIOL-2343-CESTAT-MUM the Bench has held that when the cost of the services are included in the final cost of the products, CENVAT credit should not be denied of the service tax paid on the services utilized.
Noting that the instant proceeding was the second round of litigation, the Bench extracted paragraph 5.1 of its order dated 03.03.2014 - 2014-TIOL-768-CESTAT-MUM and further observed -
"9.1 It can be seen from the above reproduced paragraph that we had directed the adjudicating authority either to consider the Cost Accountant's certificates furnished by the assessee are to undertake special audit in terms of Central Excise Act, 1944. The adjudicating authority has exercised his option of accepting the Cost Accountant's certificates as furnished by the assessee and satisfied himself as to the fact that the value of the insurance cost has been included in the pricing of the final product. It is also recorded by the adjudicating authority that the order of the Tribunal is accepted by Revenue. On this factual matrix, we find that the findings as recorded by the adjudicating authority are in consonance of the law as has been settled by this Bench in the respondent assessee's similar case. The factual findings of the adjudicating authority that the cost of the insurance as indicated in the valuation of the final products remain undisputed. We find that this Bench in the respondent-assessee's own case by order dated 15.10.2015 - 2015-TIOL-2343-CESTAT-MUM has relied upon various judgements of the Hon'ble High Court of Bombay, and held that when the cost of any service is included to determine the valuation of the final product, CENVAT credit cannot be denied of such tax paid on the services. We do not find any reason to deviate from such a view already taken."
The CESTAT also remarked that since the earlier order dated 03.03.2014 has been accepted by the department as recorded in order-in-original, in the absence of any contest to the option chosen by the adjudicating authority on the direction of Tribunal, the same cannot be contested now by the Revenue.
Holding that the impugned orders are correct and legal and do not suffer from any infirmity, the Revenue appeals were rejected.
(See 2016-TIOL-322-CESTAT-MUM)
