2017 (10) TMI 456 - AT - Service Tax

Refund claim - professional indemnity insurance service - scope of input service - case of the Revenue is that after amendment of the definition of input service from 1.4.2011, the word the activity relating to business has been deleted from the definition of input service and the impugned service cannot be said to be directly used for providing any output service - Held that - the adjudicating authority has allowed refund for general insurance service for employees, equipments and property, for insuring the company against unforeseen circumstance. On the same analogy, the professional indemnity insurance service has to be viewed in the context of providing the consultancy or other professional services, where the assessee has to safeguard itself against unforeseen legal damages/costs due to negligence or other bonafide mistakes of the employees/partners. Hence, the professional indemnity insurance service is an essential ingredient for providing the output service and has direct nexus with the providing of output service. From the perusal of the insurance cover placed on record by the respondent, the cover is not for a particular employee but is a general insurance cover taken by the assessee for the firm and any partner, member or employee to indemnify against legal liability for damages, defence costs etc. As the insurance cover is not meant for personal use or private consumption of any employee, it does not fall in the exclusion clause of the definition of the input service. Refund allowed - appeal dismissed - decided against Revenue.

Summary

Issues:
Refund claim rejection for professional indemnity insurance service under Rule 5 of Cenvat Credit Rules, 2004.

Analysis:
The appellant, a provider of Management or Business Consultant Service, filed refund claims under Rule 5 of Cenvat Credit Rules, 2004. The original adjudicating authority rejected the refund claim for professional indemnity insurance service. The Commissioner (Appeals) allowed the claim, leading to the Revenue filing an appeal. The Revenue argued that post-amendment in the definition of input service, professional indemnity insurance service does not qualify as an input service. They contended that the service should be used for providing an output service or in relation to the activity mentioned in the rules. The appellant's advocate argued that professional indemnity insurance service is covered under the definition of input service. The Tribunal examined the records and considered the arguments presented by both parties.

The main contention was whether professional indemnity insurance service has a nexus with the output service. The Tribunal agreed with the analysis of the Commissioner (Appeals) regarding the definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004. The Tribunal found that professional indemnity insurance is a form of liability insurance that safeguards against negligence claims and is directly related to the output service provided by the appellant. The insurance cover is not for personal use but for the firm and its employees/partners collectively. The Tribunal noted that the service provides continuous assurance throughout the delivery process of the output service, even if the need for its use arises after the service is delivered. Therefore, the professional indemnity insurance service was deemed essential for providing the output service.

The Tribunal upheld the order of the Commissioner (Appeals) and dismissed the appeal filed by the Revenue. The decision was based on the direct nexus between professional indemnity insurance service and the output service provided by the appellant. The judgment was pronounced on 06.10.2017 by the Tribunal.