By TIOL News Service

MUMBAI, JULY 04, 2018: THE lower authorities disallowed CENVAT credit of Rs.4,73,413/- availed by the appellant of the service tax paid by them against Insurance Policies issued by National Insurance Co. Ltd. The period under consideration is from July 2014 to October 2015.

The assessee is before the CESTAT and submits that since the said services have not been used for personal consumption of employees' the same would not fall within the exclusion category of the definition of "input service" under CCR, 2004. The appellant also argues on the ground of limitation.

The AR submitted that the group insurance policy not only covered the employees but also the family members of the employee and hence the service is hit by the exclusion clause of the definition.

Both sides relied on a plethora of case laws to justify their stand.

The Single Member (Technical) compared the definition of "Input Service" before and after its amendment in the year 2011 and concluded that the phrase "activities relating to business" appearing in the inclusive part of the definition has been deleted in the year 2011 and an exclusion clause specifying the services that are to be excluded from the definition of ‘input service' had been added.

Extracting at length paragraph 20 and paragraph 8 from the order-in-original and the order-in-appeal respectively, wherein it is mentioned that "in the policy the number of people insured are 246 employees and 346 dependents"; that "insurance policies are primarily for the personal use and consumption of employees. Mere fact that the name of the insured is shown as the appellant and the benefits of the policy or the claims are routed through the appellant to its employees does not alter the position that the life insurance and health insurance of the employees are primarily for personal use or consumption of employee", the CESTAT observed that there is no reason to differ with the said finding of fact.

The Bench further held that in terms of the language of Rule 2(l) of CCR, 2004, once a finding of fact is arrived that the insurance policy is primarily for the personal consumption of the employee then the said policy shall go out in totality from the definition of the input service and there can be no justification for artificial bifurcation of the policy and allow the credit in respect of that part of the policy which is not for the personal consumption of the employee.

Some of the case laws cited were distinguished on the ground that they related to the period prior to 2011 and those which related to post 2011 were distinguished on the ground that the same did not dwell on the phrase "primarily for the personal consumption of employee".

As regards the ground of limitation taken by the appellant, the Bench, extracted paragraph 27 of the o-in-o and further observed -

"14.…the true nature of insurance policies was never in knowledge of the departmental officers and came to light only when the unit was audited. The insurance services against which this credit has been taken definitely are within the exclusion clause and credit in respect of the same would have not been admissible. Further the fact that these insurance policies provided insurance cover to family members of the employees was also never disclosed to the department. Knowing the real nature of the insurance policy appellants should have restrained themselves from taking the CENVAT Credit of the Service tax paid by them against the said policies. By taking such credit they have willfully suppressed the relevant facts knowingly to claim the CENVAT Credit not due to them. Hence extended period of limitation is correctly invoked in the present case."

The penalty was also rightly imposed by the original authority, in terms of rule 15(2) of the CCR, 2004, the CESTAT added.

In fine, the order was upheld and the appeal was dismissed.

(See 2018-TIOL-2046-CESTAT-MUM)