Custom, Excise & Service Tax Tribunal
Syntel Pvt Ltd vs Commissioner Central Goods And Service ... on 3 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
MUMBAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 87715 of 2018
(Arising out of Order-in-Appeal No. PK-80 to 92/ME/2018 dated 15.02.2018 passed
by the Commissioner (Appeals-II), GST & Central Excise, Mumbai)
Syntel Private Limited .... Appellant
Unit No.112, SDF IV, SEEPZ
Andheri (East)
Mumbai - 400 051
Versus
Commissioner of CGST & Central Excise, .... Respondent
Mumbai East 9th Floor, Lotus Info Centre Near Parel Station Mumbai - 400012.
Appearance:
Shri Bhavesh Vasu, Advocate for the Appellant Shri Adeeb Pathan, Authorized Representative for the Respondent CORAM:
HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) FINAL ORDER NO. A/85535/2024 Date of Hearing: 01.02.2024 Date of Decision: 03.06.2024 Per: M.M. Parthiban This appeal has been filed by M/s Syntel Private Limited, Mumbai (herein after referred to as "the appellant") assailing the Order-in-Appeal No.PK-80 to 92/ME/2018 dated 15.02.2018(hereinafter referred to as "the impugned order") passed by the Commissioner (Appeals-II), GST & Central Excise, Mumbai.
2. The relevant facts that arise for consideration in this case are that the appellant herein is inter alia engaged in providing 'information technology service' amongst other services and is registered with the jurisdictional Service tax authorities. The appellant is eligible to avail Cenvat credit of 2 ST/87715/2018 service tax paid on inputs, capital goods and input services received by them for providing output services in terms of Cenvat Credit Rules, 2004 (CCR). In providing the output services of information technology service, resources of skilled manpower are employed and they have to frequently travel to foreign countries for providing software services for completion of projects assigned to them. Therefore, the appellant had obtained insurance service in terms of Employees State Insurance Act, 1948 through various insurance service providers and had taken Cenvat credit of the service tax paid on such input service. Further, the appellant had availed services of travel agents for booking of the air tickets for travel of such skilled employees and executive staff in relation to their travel to foreign countries for the projects assigned to them. Similarly, service tax paid on such input service was also taken as Cenvat credit. As the output services were exported, the appellant had filed refund claim for accumulated credit under Rule 5 of Cenvat Credit Rules, 2004. However, the Department objected to availing such Cenvat credit and for rejecting the refund claim on account of such ineligible input service credit and that the conditions stipulated in the Notification No.5/2006-S.T. dated 14.03.2006 have not been followed, had issued show cause notice (SCN) dated 20.02.2014. The said SCN issue was adjudicated by the original authority in passing an Order-in-Original dated 28.05.2014, wherein he had rejected the refund claim partly amounting to Rs.62,85,945/- availed during the disputed period of October, 2011 to December, 2011 and January, 2012 to March, 2012. Being aggrieved with the original order, the appellant had preferred an appeal before the Commissioner (Appeals-II), CGST &Central Excise, Mumbai, who had partially modified the original order against which the appeal has been filed by the appellant and partially allowed the appeal and partially rejected the appeal by upholding the order of the lower authority, inter alia in respect insurance service for an amount of Rs.12,01,460/- and travel agency service for Rs.6,23,218/-. Feeling aggrieved with the above Order-in-Appeal dated 14.02.2018, to the extent of rejection of total Cenvat credit of Rs. 18,24,678/- the appellant had preferred this appeal before the Tribunal.
3.1 Learned Advocate has submitted that the appellant is engaged in providing output service of information technology services for completion of various projects abroad. In providing such output service, the appellant has availed Cenvat credit paid on input services such as travel agent services, group insurance policy services. He further stated that Cenvat credit availed 3 ST/87715/2018 in respect of air travel agency service is not excluded under clause C of rule 2(l) of CCR, 2004, as the settled position of law is that this clause cannot be interpreted to exclude the services used by the appellant for their official purpose which is different from the personal consumption of their employees.
3.2 Learned Advocate also submitted that the Cenvat credit availed in respect of insurance services is not excluded under clause C of rule 2(l) of CCR, 2004, as the same are used for the purpose of mandatory statutory requirement under the Employees State Insurance Act and being a Corporate Entity, they had to provide for insurance of employees for ensuring that the workforce is available for uninterrupted provision of output service. He also stated for the Cenvat Credit taken by the appellant on bonafide belief as permitted under the law and filing of refund objected by the department on technical reasons, cannot be a ground for imposition of penalty.
3.3 Learned Advocate relied upon the following judgments in support of their stand :-
(i) CIT Vs. Chandulal Keshavlal & Co. - (1960)38I.T.R. 601(S.C.)
(ii) Union of India Vs. Hansoli Devi - (2002)7 S.C.C. 273
(iii) CBIC Circular No. 943/04/2011-CX dated 29.04.2011
4. Learned Authorised Representative (AR) appearing for the department, on the other hand, would submit that the definition of 'input service' under Rule 2(l) ibid has undergone a change, which needs to be considered. He would draw my attention to the said change and submit that prior to 01.04.2011, the definition clearly indicates that the same should be used in providing output services. He would submit that post 02.04.2011, the definition & input service has undergone a change, which exclude various input services which are used for personal consumption and employees' consumption and such services which are excluded include life insurance, health insurance and travel benefits extended to employees such as Leave or Home Travel Concession. He would submit that Cenvat credit has been availed post 01.04.2011 on such services should be denied as they are for the personal consumption of the employees.
4ST/87715/2018
5. Heard both sides and perused the records of the case. I have examined the submissions advanced by the learned Advocate appearing for the appellant and the learned Authorized Representative of the Department. Further, I have also perused the additional written submissions in the form of paper books submitted by both sides along with citation of case laws which both sides have mentioned in support of their case.
6.1 The issue involved in these appeals is to decide on the eligibility to avail the Cenvat credit on various input services which were utilized by the appellant during the course of his business for providing output service of information technology services and on account of such services being exported, the accumulated credit have been claimed as refund. It is undisputed fact of the case that service tax has been paid on the input services. There is no dispute that the appellant is eligible to avail Cenvat credit. The dispute is relating to whether these services are used in or in relation to the provision of output service. The services which are in dispute are air travel agent service and the insurance service.
6.2 It can be seen from the factual matrix of the case that both the said services were utilized by the appellant during the course of providing output service. For example, the engineers and executive staff in charge of providing the output service in completion of the project allotted to them were required to visit various locations abroad for this purpose. In all such situations, transportation by air of personnel employed for providing output services, by using Air travel agent service for their movement are essential and are directly linked in providing output service. Further, providing insurance for the personnel employed in provision output services, where they handle electrical equipment including computers etc. are required to be mandatory covered by insurance policy.
6.3 In order to address the above issue of eligibility to avail the Cenvat credit on various input services, we would like to refer the relevant legal provisions contained in Cenvat Credit Rules, 2004 as it existed during the disputed period in respect of the taxable service under dispute.
"Definitions.
2. In these rules, unless the context otherwise requires,--
(l) 'input service' means any service,--5
ST/87715/2018
(i) used by a provider of output service for providing an output service;or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal;
but excludes--
(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for-
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or (BA) service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by--
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.
Explanation.--For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis."
6.4 On careful reading of the definition of 'input service' under Rule 2 (l) of CCR, 2004 as above, I find that it provides for three categories of services, out of which (i) 'means' part of the definition, generally cover services which are used directly or indirectly, in or in relation to manufacture of final goods or for 6 ST/87715/2018 providing of output services; and (ii) 'inclusion' part of the definition, specifically state certain services used in relation to various activities, which is used in relation to the manufacture of final products or provision of output services, both of which are covered under the scope of 'input services'. Further, the third category, (iii) 'exclusion' part of the definition provided under Clauses (A), (B), (BA) and (C), specifically provide for certain services or portion of such services, which are not included in the above definition of 'input service'. However, there are certain exceptions to this exclusion are also given in the form of 'except for provision of certain services', 'except when used by certain category of persons', 'when such services are not primarily used for specified use' etc. 7.1 In order to examine whether a particular service is covered as 'inputs service', either it could be covered under category (i) or (ii) and should not fall under the exclusion category under (iii) above. As regards the Cenvat credit availed in respect of insurance services, I find that to the extent that such services are not used primarily for personal use or for consumption of any employee, they would qualify as eligible 'input service' by being not specifically covered under the clause (C) of Rule 2(l) ibid. The sample invoice produced by the appellant indicate that these are for 'Group Insurance Policy' provided by Ergo General Insurance Co. Ltd., for covering the risk of the business travel abroad including specific clauses for emergency medical facility/expense, loss of baggage/documents and baggage delay, flight delay etc., which has direct nexus on the availability of employee at the project site abroad for completion of the output services. As the insurance services as above are in the nature of services availed for providing output service in terms of ensuring that the project site, personnel employed for providing output service are protected for providing continuous and uninterrupted service, these cannot be categorised as being in the nature of insurance service for personal use or consumption of employees. Similarly, in respect of air travel agent services provided to their employees, sample documents of American Express Business Travel, travel agency service provided by American Express (India) Pvt. Ltd., Gurgaon indicate that the travel arrangements are for travel abroad as employee for business purposes. Thus, I find that these services are not covered under the exclusion clause (C) of Rule 2(l) ibid.
7.2 I find that the dispute in respect of availment of Cenvat credit on insurance service is no more open to debate, as in a number of cases the 7 ST/87715/2018 Tribunal has held the same as admissible. The relevant paragraphs of order of the Tribunal in the case of Honda Motorcycle & Scooter (I) Pvt. Ltd. Vs. Commissioner of C. Ex. Delhi-III - 2016 (45) S.T.R. 397 (Tri. -Chan.) is extracted and given below:
"(iii) The medical insurance and life insurance service :
4.1 The credit on the medical insurance and life insurance service was denied to the appellants relying on the Circular No. 843/4/2011-CX., dated 29-4-2011 wherein, it has been held that the credit is not allowed on the services used primarily for welfare of the employees.
4.2 Learned Counsel argued that the insurance is for the employees' welfare and is required in terms of Section 38 of Employees State Insurance Act. She argued that the scope of insurance taken is same as required under ESI Act. She also relied on the decision of Hon'ble Karnataka High Court in the case of Stanzen Toyotetsu India (P) Ltd. - 2011 (23) S.T.R. 444 (Kar.) wherein the Hon'ble High Court has observed as follows : -
14. In so far as Insurance coverage to the employees is concerned in the course of employment if the employees suffer injury or dies, there is a vicarious liability imposed on the employer to compensate the employee. If the employer employs its own transportation facility in order to cover the risk which also includes the risk of workers who are covered in that statutory establishment. He has to take the insurance policy without which the vehicle cannot go on the road. Under the Workmen's Compensation Act he has to obtain the Insurance Policy covering the risk of the employees. The Employees' State Insurance Act takes care of the health of the employees also and casts an obligation on the employer to provide insurance services. Under these circumstances, this Group Insurance Health Policy though is also a welfare measure is an obligation which is cast under the Statute that the employer has to obey. Section 38 of the Employees' State Insurance Act, 1948, mandates that subject to the provisions of the Act, all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act. May be the employees also have to contribute but the employer is under an obligation to take an insurance policy and contribute his share. Therefore, the said Group Insurance Health Policy taken by the assessee is a service which would constitute an activity relating to business which is specifically included in the input service definition.
4.3 Learned AR argued that apart from insurance the employees are also availing the medical allowances and therefore medical insurance risk coverage is nothing but welfare of the employees.
4.4 We have considered the rival submissions. Learned Counsel has argued that the insurance is strictly in terms of Section 38 of ESI Act. In terms of the decision of Hon'ble Karnataka High Court (supra), so long as the insurance is in terms of Section 38 of ESI Act the credit of the service tax paid is allowed. The appeal on this count is allowed."
7.3 I further find that the Hon'ble High Court of Karnataka has held the insurance service as admissible for availing the Cenvat credit as input services. The relevant paragraphs of judgement in the case of Commissioner of C. Ex. & Service Tax, LTU, Bangalore Vs. Micro Labs Ltd. - 2011 (270) E.L.T. 156 (Kar.) is extracted and given below:
8ST/87715/2018 "This appeal is by the Revenue being aggrieved by the order of the Tribunal which held that the assessees are liable to avail Cenvat credit towards service tax paid on Group Mediclaim Policy premium.
2. The assessees are engaged in the manufacture of medicaments and are holders of Central Excise Registration. On scrutiny of the records by the authority it was seen that they had availed Cenvat credit for payment made towards Group Mediclaim Policy premium. Accordingly, a show cause notice was issued as to why the Cenvat credit availed by the assessees towards payment of Group Mediclaim Policy premium should not be demanded and recovered since it was irregularly availed by them and also as to why the penalty and interest should not be imposed. After submitting the reply the assessing authority confirmed the demand, penalty and interest. Aggrieved by the same, an appeal was preferred to the Commissioner who confirmed the order of the assessing authority and dismissed the appeal. Aggrieved by the same the assessees preferred an appeal before the Tribunal. The Tribunal by placing reliance in the case of Stanzen Toyotetsu India Pvt. Ltd. v. CCE, Bangalore-III reported in 2009 (14) S.T.R. 316 (Tri.-Bang.) held that the assessees are entitled to avail Cenvat credit of the service tax paid on Group Mediclaim Policy premium. Hence, the present appeal by the Revenue.
3. The question for consideration therefore is as to whether the assessees are liable to avail Cenvat credit towards payment of service tax on the Group Insurance Health policy. An identical question came up for consideration before the Division Bench in CEA 96/2009 and connected matters which were disposed off on 8-4-2011. The question considered therein was as to whether the assessees are entitled to claim Cenvat credit for the service tax paid on Insurance/Health Insurance policy. The Division Bench held that in so far as Insurance coverage to the employees is concerned in the course of employment if the employees suffer injury or dies, there is a vicarious liability imposed on the employer to compensate the employee. If the employer employs its own transportation facility in order to cover the risk which also includes the risk of workers who are covered in that statutory establishment, he has to take the insurance policy with which the vehicle cannot go on the road.
Even for entering into the premises to meet the obligations under the workmen's compensation Act he has to obtain the Insurance Policy covering the risk of the employees. The employee State Insurance Act takes care of the health of the employees also and casts an obligation on the employer to provide insurance services. Under these circumstances, this Group Insurance Health Policy though is also a welfare measure is an obligation which is cast under the Statute that the employer has to obey. Section 38 of the Employees State Insurance Act, 1948, mandates that subject to the provisions of the Act, all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act. May be the employees also have to contribute but the employer is under an obligation to take an Insurance policy and contribute his share. Therefore, the said Group Insurance Health Policy taken by the assessee is a service which would constitute an activity relating to business which is specifically included in the input service definition.
4. Therefore, merely because these services are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and the assessees are not entitled to the benefit of CENVAT credit. In fact, Rule 3 of the Cenvat Rules, 2004, specifically provides that the manufacturer of final products shall be allowed to take credit. The service tax is leviable under Section 66 of the Finance Act and paid on any input service received by the manufacturer of a final product. Therefore under the scheme of the Cenvat Credit Rules, 9 ST/87715/2018 2004, the service tax paid on all those services which the assessee has utilized directly or indirectly in or in relation to the final product is entitled to claim the credit. Therefore, the Judgment of the Tribunal is legal and valid and is in accordance with law and does not suffer from any legal infirmity which calls for any interference.
5. Therefore it is evident that the assessees are entitled to avail Cenvat credit of the service tax on Group Medical Policy and Group Insurance Health Policy. Under these circumstances, the question of law that arises for consideration in this appeal having since been answered by the Division Bench as mentioned hereinabove, this appeal is dismissed in view of the aforesaid reasons."
8.1 Accordingly, I hold that Service Tax paid on insurance services for an amount of Rs.12,01,460/- and Service Tax paid on air travel agency services for an amount of Rs.6,23,218/- as discussed above are eligible to be availed of Cenvat credit as per statutory provisions discussed under paragraph 7.1 above and as per the decision above Hon'ble High Court and the Tribunal discussed in paragraphs 7.2 and 7.3 above.
8.2 Now the question that arises is regarding services which were excluded by the amendment after 02.04.2011 to the definition of Rule 2(l) of the Cenvat Credit Rules, 2004. The said services are - outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees such as Leave or Home Travel Concession. The amendment indicates when such services are used purely for personal use for consumption of any employee, the Cenvat credit cannot be allowed. On perusal of the records, I find that the appellant has been taking the insurance service and air travel agency service on which Cenvat credit is sought to be denied relying upon the said amendment to Rule 2(l) of the Cenvat Credit Rules, 2004, is incorrect as these services are utilized for the purposes other than personal use of employees or for consumption of employees. Thus, the input tax paid on these services would be available as Cenvat credit for under CCR, 2004, even after the amendment brought into effect from 02.04.2011.
9. In view of the foregoing, I hold that the impugned order is liable to be set aside to the extent of denial of Cenvat credit in respect of insurance services and air travel agency services, as in my considered view these are found to be eligible input service under Rule 2(l) of the Cenvat Credit Rules, 2004, in the present factual matrix of the case. Accordingly, in partial modification of impugned order dated 14.02.2018 to the above extent, I 10 ST/87715/2018 allow Cenvat Credit for an amount of Rs.18,24,678/-, towards insurance services and air travel agency services.
10. In the result, the appeal filed by the appellant is allowed in favour of the appellant in the above terms.
(Order pronounced in open court on 03.06.2024) (M.M. Parthiban) Member (Technical) Sinha