Group Insurance Covering Accidental Death and Injury During Working Hours Qualifies as Input Service, Not Personal Use: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that group insurance policies covering employees against accidental death and injury during working hours qualify as “input services” and cannot be treated as personal use.

Cabletech Services Pvt. Ltd., the appellant, is a registered service provider engaged in manpower supply to clients including Hathway Cable & Datacom Ltd. The appellant availed CENVAT credit of Rs. 29,15,688 on group mediclaim, life insurance, and personal accident policies provided to its employees during 2014-15 to 2017-18.

The department’s audit raised an objection that these insurance services were for employees’ personal benefit and not for providing output service. A show cause notice was issued seeking recovery with interest and penalty. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it. Aggrieved by this decision, the appellant approached the CESTAT.

The appellant’s counsel argued that group insurance is a statutory requirement under Section 38 of the Employees' State Insurance Act, 1948 and Section 4A of the Payment of Gratuity Act, 1972. The appellant’s counsel further argued that the appellant was contractually obliged to comply with labour welfare laws, and without such group insurance, manpower could not be deputed to clients.

Relying on decisions such as Ganesan Builders Ltd. v. CST, Chennai-II, and Dharti Dredging, they argued that statutory insurance cover is an eligible input service and not excluded as personal use. They also argued that the extended limitation period was wrongly invoked since all data was taken from its records during audit and there was no suppression.

The revenue’s counsel argued that group mediclaim and life insurance are primarily for employees’ personal benefit and do not directly contribute to manpower supply service. It was further argued that the extended period was rightly invoked as the appellant had not disclosed in its ST-3 returns that these were personal use services.

The two-member bench comprising Dr. Suvendu Kumar Pati (Judicial Member) and Prasad (Technical Member) observed that Rule 2(l) of the CENVAT Credit Rules defines input service as any service used for providing output service.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The tribunal observed that statutory compliance through group insurance was necessary to carry on manpower supply and without such compliance, output service could not be provided. It further observed that the policies covered only accidental death and injury during working hours and did not extend extra personal benefits.

The tribunal pointed out that judicial decisions, including those of the Larger Bench, consistently held that statutory requirements are essential inputs and not personal use.

The tribunal explained that maintaining consistency with judicial precedent required treating such statutory group insurance as an eligible input service. The appeal was allowed and the order of the Commissioner (Appeals) was set aside with consequential relief.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates