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The Bench comprising Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) was dealing with an appeal filed by the Commissioner of Central GST and Central Excise, Rajkot, challenging an order-in-original which had dropped a demand for recovery of Cenvat credit amounting to ₹8.24 crore along with interest and penalty. The Revenue had restricted its challenge before the Tribunal to a portion of the credit amounting to ₹1.15 crore.

The dispute arose out of a service agreement dated December 26, 2002 entered into between Reliance Industries Ltd. and Reliance Infocomm Ltd. (RIC), under which RIL was engaged to provide a wide range of services including marketing, billing, customer support, surveillance and maintenance services for RIC’s telecom operations. Under the agreement, RIL was also required to obtain insurance cover, including insurance against subscriber default and risks associated with mobile handsets, as directed by RIC from time to time.

Pursuant to this obligation, RIL obtained insurance policies during May–June 2003 by paying a lump-sum premium to National Insurance Company Ltd. for a coverage period of three years. At the relevant time, Business Auxiliary Service was not taxable and was brought into the service tax net only with effect from July 1, 2003. RIL, however, availed Cenvat credit of service tax paid on the insurance premium on a proportionate basis corresponding to the period after July 1, 2003.

A show cause notice dated October 28, 2008 was issued alleging that Cenvat credit was not admissible on insurance services for which bills or documents were raised prior to July 1, 2003, since the output service was not taxable during that period. It was alleged that availing such credit was contrary to Rule 3(3) of the Service Tax Credit Rules, 1994. The adjudicating authority, however, dropped the proposed demand, leading to the Revenue’s appeal before the Tribunal.

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Before the Tribunal, the Revenue argued that since Business Auxiliary Service was not taxable prior to July 1, 2003, insurance services received before that date could not qualify as input services. It further contended that there was no provision in the Service Tax Credit Rules permitting proportionate availment of credit where the invoice was issued prior to the date on which the output service became taxable.

RIL, on the other hand, submitted that the insurance policies covered a continuous period extending beyond July 1, 2003 and that it had availed credit strictly on a proportionate basis corresponding to the period after the levy of service tax on Business Auxiliary Service. It relied on the Tribunal’s earlier decision in GHCL Ltd. v. Commissioner of Central Excise, Bhavnagar, where proportionate credit was allowed in similar circumstances when services spanned both pre-tax and post-tax periods.

After examining the service agreement, the insurance arrangement and the rival submissions, the Tribunal observed that RIL had been granted marketing rights and maintenance responsibilities for RIC’s telecom network and associated utilities. However, the Bench noted that it was not clear from the agreement who owned the mobile handsets or under what terms they were provided to subscribers, and how exactly the insurance services were linked to the provision of taxable output services after July 1, 2003.

The Tribunal held that while proportionate Cenvat credit is legally admissible for the period on or after July 1, 2003, the assessee is required to satisfy the jurisdictional authorities that the insurance services were indeed relatable to and consumed in the provision of taxable output services during that period. It observed that these factual aspects had not been fully verified by the adjudicating authority.

Agreeing in principle with the assessee’s contention on proportional credit, the Bench held that “Cenvat credit on input services in this case is allowable on proportionate basis for the portion that pertains to the period on or after 01.07.2003.” At the same time, it found it necessary that the precise nexus and consumption of services be verified.

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Accordingly, the Tribunal remanded the matter back to the adjudicating authority for the limited purpose of verifying the factual linkage between the insurance services and the output services provided by RIL after July 1, 2003, and to decide the allowability of the disputed Cenvat credit in accordance with law. The appeal was disposed of by way of remand with a direction to complete the exercise within four months.

Appearance

Counsel for Appellant/ Department: Rajesh Nathan

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

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

Case No: Service Tax Appeal No. 10521 of 2019-DB

Coram: Somesh Arora (Judicial Member), Satendra Vikram Singh (Technical Member)