Reliance Industries Entitled To Proportionate Cenvat Credit On Insurance Services For Post 01.07.2003 Period: CESTAT Ahmedabad

Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) examined whether Cenvat credit is admissible on insurance services received during the period when output service (i.e. Business Auxiliary Service) was out of the tax net.

In this case, Reliance Industries Ltd. (RIL) (assessee) entered into a service agreement with Reliance Infocomm Ltd. (RIC) to provide marketing, maintenance, billing and support services for telecom operations.

As per the agreement, the assessee had to obtain insurance cover, including insurance against subscriber default and handset risk. The assessee obtained an insurance policy in May-June 2003 by paying a lump-sum premium for a coverage period of three years.

Business Auxiliary Service became taxable only after 01.07.2003. The assessee availed Cenvat Credit of service tax on insurance premium on a proportionate basis for the period after 01.07.2003.

A show cause notice was issued to the assessee alleging that the assessee had taken above Cenvat credit on insurance service for which bills/ documents were raised prior to 01.07.2003, and credit was not admissible in terms of Rule 3(3) of the Service Tax Credit Rules, 1994.

The Adjudicating Authority had dropped the proposal made in the show cause notice for recovery of Cenvat credit of Rs. 8,24,58,703/- along with interest and penalty.

The assessee relied on the decision in the case of GHCL Ltd v. Commissioner of Central Excise Bhavnagar reported at 2009 (242) ELT 468 (Tri.- Ahmd.) wherein, the dispute pertained to Cenvat Credit Rules, 2004, Rule 3 of which contains a stipulation that credit could be availed only on those input services received on or after 10.09.2024. In that case, the Tribunal held that in case the service covered the period before as well as after 10.09.2004, credit was permitted proportionately for the period after 10.09.2004.

The Tribunal observed that the assessee was granted marketing rights of the entire range of services, including comprehensive surveillance and maintenance support services of RIC's Telecom networks, including maintenance of associated utilities such as Air conditioners, Diesel Generator Sets, Security systems, fire alarm systems, etc., in telecom installation.

It is not forthcoming from the agreement as to who was the owner of mobile handsets and under what terms and conditions these were provided to the subscribers. What relation does the service provider have with these handsets in terms of the service agreement dated 26.12.2002, for which insurance service has been availed and claimed to be consumed for providing output services, stated the bench.

The Tribunal opined that the credit availer (RIL) is obliged to satisfy jurisdictional authorities as to how insurance services were related to the output services provided by RIL and were indeed consumed on or after 01.07.2003. These aspects need to be verified by the adjudicating authority to decide on the allowability of the disputed Cenvat credit.

The bench held that Cenvat credit on input services in this case is allowable on a proportionate basis for the portion that pertains to the period on or after 01.07.2003.

In view of the above, the Tribunal remanded the matter back to the adjudicating authority to decide on the allowability of the disputed Cenvat credit.

Case Title: Commissioner of Central GST and Central Excise v. Reliance Industries Ltd.

Case Number: SERVICE TAX Appeal No. 10521 of 2019-DB

Counsel for Appellant/ Department: Rajesh Nathan

Counsel for Respondent/ Assessee: Vishal Agarwal with Abhishek Deodhar and Dimple Gohil

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