Is CENVAT credit admissible on employee’s group health insurance and construction and other services used for setting-up global training center, hostel and gym situated therein? Services of data link and communication charges classifiable under ‘Tele Communication Services’ received from foreign service providers not taxable as the provider does not have a license under Indian Telegraph Act. Services tax under reverse charge mechanism not applicable in respect of services received from overseas subcontractors by the overseas branches of the appellant when the services are also utilised abroad as payments made from export earnings only.
Facts:- The appellant took CENVAT credit of group health insurance obtained for their employees, construction services used for setting-up of global training center & various services used for hostel and gym lying within the center during the period prior to 01/04/2011 and subsequently. Further, services were received from outside the territory of India relating to communication and data link. Their overseas branches undertook several projects relating to software development etc. which were entrusted to overseas sub-contractors. The payments to the subcontractors were done by appellant through their EFFC account in foreign currency. Department sought to demand service tax on ineligible CENVAT credits and under reverse charge mechanism on services received by overseas branches and data link charges etc.
Held:-
Relying upon the decision of Commissioner of CE vs. Micro Labs Ltd. 2011 (270) ELT 156 (Kar.-High Court) and Commissioner of CE v. Stanzen Toyotestu India (P) Ltd. 2011 (23) STR 444 (Kar.), the Tribunal held that, CENVAT credit is admissible in respect of insurance coverage of employees alone. However, if policy covers person other than employees and no contribution is required from the employees towards such coverage then such credit shall have to be proportionately reversed, to such extent.
In respect of construction services, it was argued that Appellant was rendering commercial training and coaching service and the center was used for the said purpose on which service tax was paid. The Tribunal, relying on the decision of CE vs. Sai Sahmita Storages (P) Ltd. 2011 (23) STR 341 (AP) and noting the fact that upto 01/04/2011 setting up of premises of output service provider was eligible for credit, allowed the same. However, subsequent to 01-04-2011, only services used in respect of modernisation, renovation, repairs of premises from where service is provided would be admissible. Further, in respect of hostel and gym, it was claimed that such facilities to employees is necessary as the center was situated far away from city. It was held that both cannot be considered as premises from where service is provided, as contemplated by definition of input service and hence CENVAT credit is inadmissible.
In respect of, demand of service tax under reverse charge mechanism, appellant relied upon Board’s circular issued in F. No. 137/21/2011-ST dated 19-12-2011 and referred observations made on same issue in the case of their own sister company M/s. Infosys BPO Ltd. wherein, demand was dropped. Tribunal held that service is classifiable under “Telecommunication Service” and such services are taxable only when the same is provided by a person having license under the Indian Telegraph Act, 1885.
In respect of reverse charge mechanism, it was stated that, the foreign branches of the appellants received the services abroad and the same was consumed abroad and thus, section 66A has no application. In view of the revenue, the services were received from the sub-contractors through their overseas branches and payments for such services were made by the appellant. The Tribunal placed reliance upon KPIT Cummins Infosystems Ltd. vs. CCE, Pune-I 2014 (33) STR 105 (Tri.-Mum) and affirmed that, payment made to sub-contractors from EFFC account shows that, payment was made from export earnings only and demand was dropped on account of absence of any evidence to show such receipt of service in India.
Further, since the issue relates to interpretation of legal provisions, the demand beyond normal period and penalties were set side.
