Ashok Leyland Eligible for CENVAT Credit on GTA and Mediclaim Insurance for Period Prior to 01/04/2011: CESTAT [Read Order]

The Chennai Bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) ruled Ashok Leyland eligible for CENVAT credit on Goods Transport Agencies and Mediclaim insurance for the period prior to 01/04/2011.

Ashok Leyland Ltd. (formerly Hinduja Foundries Ltd.), the appellant manufactures cast iron and aluminum articles for motor vehicles. The appellant had availed of CENVAT credit on input services such as Goods Transport Agency (GTA), Mediclaim premium, and fuel charges for the period from 2007-08 to February 2011.

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The revenue found that the services that the appellant claims were not covered in the definition of input services and were ineligible as per Rule  2(l) of CENVAT Credit Rules, 2004. After that, the revenue sought to recover of Rs. 22,11,324 of allegedly ineligible credit.

Aggrieved by the portion of the Adjudicating Authority (AA) order, the appellant appealed before the Commissioner (Appeals). However, the appeal was dismissed confirming the AA order.

The appellant appealed the Commissioner (Appeals) order before the Chennai Bench of CESTAT arguing that the sales were made on a FOR (Free on Rail) destination basis, meaning the goods were sold when delivered to the customer's premises, hence the freight was part of the cost of the goods so the outward transportation (GTA) service should be considered an "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004.

The appellant’s counsel referenced a Circular (1065/4/2018-CX) and a Larger Bench decision in the case of Ramco Cements Ltd., which clarified that credit on outward transportation can be allowed if the sale is FOR destination.

For the Mediclaim Insurance, the appellant relied on the decision of the Tribunal in Reliance Industries Ltd., which allowed credit on Mediclaim insurance, arguing that it was an integral part of the cost of employment and business.

The Technical Member, M. Ajit Kumar agreed with the appellant’s argument, finding that when goods are sold on FOR destination terms, the place of removal can be the buyer’s premises. In such cases, the outward freight charges should be eligible for credit as they are a part of the cost of the goods sold.

The tribunal referred the Supreme Court decisions in Emco Ltd. and Roofit Industries which supported the appellant's claim that the place of removal needs to be determined based on the point of sale and ownership.

The tribunal noted that during the relevant period (before April 2011), personal insurance services like Mediclaim were not excluded from the definition of input service. The ruling in Reliance Industries Ltd. supported the appellant's claim for credit on Mediclaim insurance, as it was an integral part of the employee cost related to the business.

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Therefore, the tribunal set aside the disallowance of CENVAT credits for GTA services and Mediclaim insurance premiums. The tribunal ruled that the appellant was entitled to consequential relief under the law. The appellant’s appeal was allowed.

To Read the full text of the Order CLICK HERE

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