2018 (8) TMI 1572 - AT - Central Excise

CENVAT Credit - service tax paid in respect of insurance policies - Held that - For covering the risk of marine cargo that is shipped from the port, the appellant has to take a separate policy mentioning the vessel number and details etc. These policies in question are only a comprehensive and general policy covering the fire and general risk of the premises of the factory - The argument of the ld. AR that the office package policy has no connection with the manufacturing activity cannot be accepted for the simple reason that such insurance coverage is only for the furniture and other office equipments which is covered in a package scheme. Appeal allowed - decided in favor of appellant.

Summary

Issues: Disallowance of CENVAT credit on insurance services

Analysis:
The case involved the appellants, engaged in manufacturing various materials, availing CENVAT credit on ISD challans distributed by the Head Office for services during April 2014 to March 2015. The department contended that certain services were not eligible for credit, leading to a show cause notice proposing credit denial, recovery with interest, and penalties. The original authority upheld the demand for certain services and imposed penalties. The Commissioner (Appeals) allowed credit on all services except insurance service worth &8377; 6,79,872/-, prompting the appellants to appeal to the Tribunal.

During the appeal, the appellant argued that the insurance services were part of a comprehensive policy, including fire insurance renewal, CPM, and office package policy. They asserted that CENVAT Credit Rules limit credit to life and health insurance only, excluding personal insurance or consumption. The appellant had availed credit on comprehensive insurance policies directly or indirectly related to manufacturing activities, citing relevant case law to support their position.

On the other hand, the department's representative supported the impugned order's findings, emphasizing that the insurance policy included add-on risk coverage for marine cargo and office package policy, not directly linked to manufacturing activities.

After hearing both sides, the Tribunal found that the appellant's credit disallowance for service tax on insurance policies was unjustified. The appellant had availed credit for fire insurance, plant and machinery insurance, and stock insurance, with additional marine cargo coverage. The Tribunal noted that the add-on insurance was specific to cargo reaching the port, requiring a separate policy for cargo leaving India. The insurance policies in question were general and comprehensive, covering fire and general risks at the factory premises. The Tribunal disagreed with the department's argument that the office package policy was unrelated to manufacturing activities, as it covered furniture and office equipment under a package scheme. Consequently, the impugned order disallowing credit was set aside, and the appeal was allowed with any consequential relief.

This judgment highlights the importance of establishing a direct or indirect connection between availed services and manufacturing activities to determine CENVAT credit eligibility, emphasizing the specific nature of insurance policies and their relevance to business operations.