Exclude of ‘Input Service’ Under Definition of ‘Input Service’ under Rule 2(l) (C) of CENVAT Credit Rules, 2004

With the ultimate aim of maximising service tax revenue collection, the government tried to minimise the opportunity of taking CENVAT Credit and for this noble cause, definition of ‘Input Service’ in CENVAT Credit Rules, 2004 (all rules mentioned herebelow refers to rules of CENVAT Credit Rules, 2004) was
amended vide Notification No. 3/2011-CE(NT) and after this amendment the some exclusion were made vide Rule 2(l) (C).

Relevant provision of Rule 2(l) is follow:-

(l) “input service” means any service,-

                (i) used by a provider of output service for providing an output service;

                (ii)………….

 and includes services………………………………………………………………………………………………………………..but exclude:-

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre life insurance, health insurance and travel benefits extended  to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.

Analysis point wise:

1. What services have been excluded from definition of ‘Input Service’?

-          All those services provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, have been excluded from definition of ‘Input Service’ under Rule 2(l) (C).

2. Whether the list mentioned in definition of ‘Input Service’ under Rule 2(l) (C) is specific or illustrative?

-          In this regard a clarification has been made by Circular No. 943/04/2011-CX that the list is only illustrative. The principle is that CENVAT Credit is not allowed when any services are used primarily for personal use or consumption of employees.

 3. What are the circumstances when exclusion is effective?  

-          Definition of ‘Input Service’ under Rule 2(l) (C) prescribes the circumstances and says that when such services are used primarily for personal use or consumption of any employee, the exclusion will become alive.

4. What is personal use or consumption of any employee?

-          Personal use or (personal) consumption is averse of Group use or (Group) consumption. Group life insurance or group health insurance cannot be said that they are meant for Personal use or (personal) consumption averse of Group use or (Group) consumption.

And as per definition, CENVAT Credit is not allowed when used primarily for personal use or consumption of any employee. In another words, if services are used secondarily or otherwise even for personal use or consumption of any employee, the Credit is allowed.