Relief to Sathyam Computers, Cenvat credit allowable on Service Tax paid on Premium for Medical Insurance of Employees and their families: CESTAT [Read Order]

As a relief to Satyam Computers, the Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Cenvat credit can be allowable on the service tax paid on premium for medical insurance o employees andtheir families.

Shri Satya Sai, Advocate appeared for the Appellant and Shri A. Rangadham, Authorized Representativeappeared for the Revenue.

The appellant challenged the Order-in original dated 19.10.2009 passed by the Commissioner of Central Excise & Service Tax, Hyderabad-II, whereby CENVAT credit amounting to Rs.4,15,09,544/- taken by the appellant on the service tax paid on insurance services under group Medishield policies and personal accident policies provided to its employees and their families was denied for the period January 2006 to July 2007. A penalty of Rs.4,16,00,000/- was also imposed upon the appellant under section 78 of the Finance Act, 1994.

The appellant provides information technology services such as e-business solutions, engineering services, enterprise solutions, customized software development services and ERP implementation services and is registered with the department and has been paying service tax. The appellant also avails Cenvat credit on various input services used for providing output services as per Cenvat Credit Rules, 2004.

The appellant was advised by the department that the service tax paid in respect of insurance premiums towards medishield policies and personal accident policies would not be eligible for Cenvat credit and the appellant reversed the entire amount of Cenvat credit of Rs.4,15,09,544/- and reflected the reversal in its Service tax return for the month of August 2007 and also intimated the department about the reversal by letter dt.19.10.2007. The impugned order was passed confirming the recovery of the Cenvat credit so availed.

A Coram of Mr Anil Choudhary (judicial) and Mr P Venkata Subba Rao, member (technical) observed that the input service includes any service used in activities relating to business. In their case, they are in the business of providing software solutions and the main resource for providing this service are their employees, who and whose families were provided with the mediclaim insurance by the appellant and the premium paid for such insurance qualifies as input service.

In light of Reliance Industries Ltd, the Tribunal held that Cenvat credit is available on the service tax paid on premium for medical insurance of its employees and their families and set aside the impugned order.

To Read the full text of the Order CLICK HERE

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