2013 (12) TMI 787 - AT - Service Tax

Denial of CENVAT Credit - Service tax on insurance premium paid - Held that - When the appellant has undisputedly paid insurance premium for protection of its plant and machinery from various risks and hazards that cannot be isolated from consideration of Cenvat credit of Service Tax paid against premium. Although it does not contribute to manufacture directly but manufacture is made with such facility which had indirect nexus. On such premise the reasoning of the first appellate authority does not stand to reason nor sound well in law - Decided in favour of assessee.

Summary

Issues: Disallowance of Cenvat credit on Service Tax paid on insurance premium for building, plant, and machinery.

In the judgment delivered by the Appellate Tribunal CESTAT NEW DELHI, the issue revolved around the disallowance of Cenvat credit on Service Tax paid on insurance premium for building, plant, and machinery. The appellant, a manufacturer of I.C. Engine parts, contended that the insurance premium paid had a direct nexus to the manufacturing facility and infrastructure, thus making Cenvat credit admissible. The authority below had disallowed the credit without providing any reason, which was reversed by the learned Commissioner (Appeals) in favor of the Revenue. The appellant argued that the protection of plant and machinery through insurance could not be isolated for disallowance, as it was relevant and had a nexus to the manufacturing process. The Tribunal agreed with the appellant, emphasizing that the insurance premium paid for the protection of plant and machinery, even though not directly contributing to the manufacturing process, had an indirect nexus to it. The reasoning of the first appellate authority was deemed unsound in law, leading to the setting aside of the order and allowing the appeal in favor of the appellant.

The Tribunal noted that the insurance premium paid by the appellant was for the protection of its plant and machinery from various risks and hazards, which could not be disregarded when considering the Cenvat credit of Service Tax paid on the premium. Despite the indirect contribution to the manufacturing process, the facility provided by the insurance had a relevant nexus to the manufacturing activities. The Tribunal emphasized that such a nexus could not be brushed aside, especially when the appellant was engaged in the manufacturing of I.C. Engine parts. The judgment highlighted that the reasoning of the first appellate authority was not in accordance with the law, as the protection provided by the insurance was integral to the manufacturing process, warranting the allowance of the Cenvat credit on the Service Tax paid on the insurance premium.

In conclusion, the Tribunal set aside the order disallowing the Cenvat credit on the Service Tax paid on the insurance premium for building, plant, and machinery. The appeal filed by the appellant was allowed, emphasizing the direct nexus between the insurance premium paid and the protection of plant and machinery, which indirectly contributed to the manufacturing process. The judgment underscored the importance of recognizing such indirect contributions and relevant nexus in determining the admissibility of Cenvat credit in cases involving insurance premiums for manufacturing facilities and machinery.