In a recent ruling, the Mumbai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) has ruled that appellant was not entitled to Cenvat credit for insurance premiums paid on outward transportation of final products, or service tax on hospitality and management services at the residential colony.
The appellant, Skoda Auto India Pvt. Ltd, a manufacturer of excisable goods such as motor vehicles, utilized the Cenvat credit facility during the period from April 2005 to August 2009. The appellant was served with three show cause notices, proposing the denial of Cenvat credit amounting to Rs. 31, 60,453. This credit had been availed on service tax paid on insurance premiums related to the transportation of the final products. Notably, Rs. 25, 78,094 of this amount pertained to the period between 2005-06 and 2007-08.
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Additionally, for the period from 2007-08 to March 2011, four further show cause notices were issued, proposing the denial of Cenvat credit totaling Rs. 10,63,186, which was availed for service tax paid on transportation services provided to employees for commuting between their homes and the factory. Lastly, six more show cause notices were issued for the period from April 2007 to March 2011, proposing the denial of Cenvat credit amounting to Rs. 20, 73,220 related to service tax paid on hospitality and management services offered at the employees’ residential colony.
The show cause notices were adjudicated, and the authorities held that the services in question did not have a sufficient nexus with the manufacturing process. Consequently, the amounts of Cenvat credit in question were ordered to be recovered from the appellant, along with interest, and equal penalties were imposed. Dissatisfied with these decisions, the appellant filed appeals with the Commissioner (Appeals), who dismissed them, upholding the orders-in-original. The appellant then escalated the matter to the Tribunal.
Representing the appellant, Mr. Anay Bhatti argued that the insurance obtained for the final products during transportation should qualify for Cenvat credit, particularly for the period prior to March 1, 2008, when Cenvat credit was available for outward transportation of goods. He cited the Supreme Court’s ruling in Commissioner of Central Excise, Belgaum vs. Vasavadatta Cements Ltd., which supported the appellant’s stance on the availability of Cenvat credit for outward transportation-related insurance before the March 1, 2008 cut-off. Regarding Cenvat credit on transportation services provided to employees, he referenced rulings by the Karnataka High Court in Commissioner of Central Excise, Bangalore-III vs. Stan En To Otetsu India (P) Ltd. and Commissioner of Central Excise, Bangalore-I vs. Bell Ceramics Ltd., both of which supported the admissibility of such credits.
Further argued that Cenvat credit on hospitality and management services at the residential colony should also be admissible, citing the Andhra Pradesh High Court’s decision in Commissioner of Customs & Central Excise, Hyderabad-III vs. ITC Ltd.
On the other hand, Mr. Xavier Mascarenhas, representing the revenue, argued that the Cenvat credit on outbound transit insurance was not permissible, relying on the Supreme Court’s rulings in Commissioner of Customs & Central Excise, Nagpur vs. Ispat Industries Ltd. and Commissioner of Central Excise & Service Tax vs. Ultra Tech Cement Ltd. Mascarenhas also cited a decision from the Bombay High Court, which held that residential colonies for employees were welfare activities unrelated to business, thus disallowing Cenvat credit in such cases.
After reviewing the case, the bench, led by Technical Member Anil G. Shakkarwar, concluded that the Supreme Court ruling in Ispat Industries Ltd. did not directly pertain to the admissibility of Cenvat credit. However, the ruling in Ultra Tech Cement Ltd. was found relevant, and in conjunction with the ruling in Vasavadatta Cements Ltd., the Tribunal allowed Cenvat credit on insurance premiums for outward transportation up to March 1, 2008.
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The Tribunal ruled that the appellant was not entitled to Cenvat credit for insurance premiums paid after March 1, 2008, or service tax on hospitality and management services at the residential colony. However, it allowed the credit for bus transportation services for employees. While penalties were set aside, given the interpretational nature of the issues, the appellant was directed to pay interest on the disallowed credits and to approach the Assistant Commissioner for the quantification of admissible credits on transit insurance.
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