Employee Welfare Expenses Forming Part of HR Policy Eligible for CENVAT Credit: CESTAT in SBI Cards Case [Read Order]
CESTAT ruled that employee welfare expenses such as group mediclaim insurance, when forming part of a company’s HR policy, qualify as input services eligible for CENVAT credit.
Employee Welfare Expenses - HR Policy Eligible -CENVAT Credit - CESTAT - SBI Cards Case - taxscan
Employee Welfare Expenses - HR Policy Eligible -CENVAT Credit - CESTAT - SBI Cards Case - taxscan
The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that employee welfare expenses forming part of a company’s HR policy are eligible for CENVAT credit.
SBI Cards & Payment Services Ltd., the appellant, is engaged in providing credit card services. During an audit, the department observed that the appellant had availed CENVAT credit on service tax paid for employee group insurance and mediclaim insurance.
The department alleged that such services were not used for providing output services and issued a show cause notice dated June 25, 2013, covering the period from 2008-09 to 2010-11. The adjudicating authority confirmed the demand with interest and penalty. The Commissioner (Appeals) upheld the order. Aggrieved by the decision, the appellant approached the CESTAT.
The appellant’s counsel argued that the issue was already settled by the Larger Bench of the Tribunal in CCE & ST, Noida v. HCL Technologies Ltd., where it was held that group medical insurance qualifies as “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004.
The counsel further argued that these services were part of the company’s HR and welfare policy and were directly connected with its business operations. They also argued that the demand was time-barred, as the issue involved interpretation of complex legal provisions and there was no suppression or intent to evade tax.
The revenue counsel argued that the services were meant for the personal benefit of employees and had no direct connection with the provision of output services. They argued further argued that the appellant did not disclose the credit in their returns, and hence, invocation of the extended period of limitation was justified.
The two-member bench comprising S. S. Garg (Judicial Member) and R. Saifi (Member) observed that the Larger Bench in HCL Technologies Ltd. had clearly held that group medical insurance taken for employees qualifies as an input service because such welfare measures are connected with the efficiency and smooth functioning of business operations.
The tribunal explained that since the issue involved interpretation of complex provisions and had been referred to a Larger Bench, the allegation of suppression with intent to evade tax could not be sustained.
The tribunal set aside the impugned order on both merits and limitation, holding that CENVAT credit on group mediclaim insurance was admissible and the demand was time-barred. The appeal was allowed with consequential relief to the appellant.
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