Cenvat credit of service tax on the services
CENVAT Credit of Service Tax on the services relating to employees welfare (Insurance service Group Insurance of employees)
As per Rule 2(l) of CCR, 2004, “Input service” means any service
- used by a provider of [output service] for providing an output service;
But excludes, –
Services 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 for consumption of any employee.
This clause which was introduced for the first time w.e.f., 1.4.2011 provides that certain specified services as listed above are excluded from the definition of ‘input services’ when such services are used primarily for personal use or for consumption of any employee.
Hence, all such services which are used primarily for the personal use of any employee such as services 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 have also been specifically excluded from the scope of the definition of input services.
Following services are excluded when they are used primarily for personal use or for consumption of any employee:
(a) Outdoor catering
(b) Beauty treatment
(c) Health services
(d) Cosmetic and plastic surgery
(e) Membership of a club
(f) Health and fitness centre
(g) Life insurance & health insurance
(h) Travel benefits extended to employees on vacation such as Leave or Home Travel Concession.
Thus the definition of “input service” excludes only Health Insurance (Mediclaim) and the Accident Insurance is not excluded from the definition of input service. The accident insurance is an essential requirement under the law which the Employeris required to undertake for all the employees and the accident insurance service is deemed to have been used in providing output service.
In this context, it is relevant to note that in the case of CCE v. StanzenToyotetsu India (P) Ltd. (2001) 23 STR 444 (Kar) the High Court of Karnataka while holding that CENVAT credit would be available on outdoor catering services, transportation charges, rent-a-cab scheme and group insurance service, it was observed that as regards the CENVAT credit on“Group insurance services” – since the Workmen’s Compensation Act, 1923 as well as the Employees’ State Insurance Act cast an obligation on the employer to provide insurance to the employees, the same although a welfare measure is a statutory obligation cast upon the manufacturer and is hence cenvatable.
On the contrary, in Clause (C) ‘health services’ and health insurance have been specifically excluded if they are used primarily for personal use or consumption of any employee.
On the basis of Karnataka High Court’s decision, wherever there is a statutory requirement to provide the health services and health insurance, it appears that CENVAT credit could be taken.
Similar view was also taken in CST v. M/s Team Lease Services Pvt Ltd (2014)-TIOL-510-HC-KAR-ST wherein the High Court of Karnataka by following the two judgments of the Division Bench of Karnataka High Court in case of Micro Labs Ltd. (2011) (270) E.L.T. 156 (Kar.) and StanzenToyotetsu India (P) Ltd. (supra), held that CENVAT credit on health insurance being the Service tax paid on the Group Personal Accident and Group Medical Policies for the employees, is an Input service for a provider of ‘Manpower recruitment or Supply agency services’. However, the dispute related to the period prior to 1.4.2011.
Notwithstanding favourable decisions, in view of the specific exclusion clause under clause (C) of Rule 2(l) of CCR, 2004 w.e.f, 1.4.2011, no input service credit could be availed on the specified services if they are meant for personal consumption of the employees.
However, it would be pertinent to note that what is disallowed seems to be such expenditure which forms part of the cost to the employees and not such expenditure incurred by the company on its own. Therefore, if the expenditure is incurred by the company, credit should be allowable.
Reference: – Page no. 39 & 40 of Chapter-4 in “Technical Guide to CENVAT Credit” issued by The Institute of Chartered Accountants of India, in the month of January 2015.
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