2019 (7) TMI 150 - AT - Central Excise

CENVAT Credit - input services - product liability insurance - post-sales/post-manufacturing service or not? - HELD THAT - The product liability insurance is availed by the appellant for covering the risk of any manufacturing defect arising out of the finished products cleared by them. When the defects are found and put forward only after use of the vehicle by the purchaser of the vehicle, in such cases, the automobile manufacturer has to compensate / satisfy the claim of the customer which is thereafter reimbursed by the appellant. In such cases to cover the risk of such payment, appellant has to avail product liability insurance. Indeed, this insurance is directly connected with the manufacturing activity of the appellant and is also an input service used in relation to the manufacture of the finished products. The denial of credit is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is eligible for cenvat credit of service tax paid on product liability insurance.

Analysis:
The case involved the appellant, engaged in manufacturing automobile wheels and parts, who availed credit of service tax paid on premium for product liability insurance for the period 2012-13 to 2015-16. The department contended that the credit was not eligible as it was post-sales/post-manufacturing service. A show cause notice was issued, leading to confirmation of demand, interest, and penalties by the original authority and the Commissioner (Appeals).

The appellant argued that the product liability insurance was to cover the risk of any manufacturing defect in their finished products, supplied to automobile manufacturers, and extended warranty to the wheels. The insurance was directly connected with their manufacturing activity and qualified as an input service. The appellant cited relevant tribunal decisions supporting their position.

The respondent contended that the warranty was extended by the automobile manufacturer, not the appellant, making the insurance a post-manufacturing activity. They argued that the insurance was a compensation for defects found after the vehicle's purchase, reimbursed by the appellant.

After hearing both sides, the tribunal held that the product liability insurance was directly connected with the manufacturing activity of the appellant and qualified as an input service for the manufacture of finished products. Citing previous decisions, the tribunal found the denial of credit unjustified and set aside the impugned order, allowing the appeal with consequential benefits.

In conclusion, the tribunal ruled in favor of the appellant, allowing them to claim cenvat credit on the service tax paid for product liability insurance, emphasizing the direct connection of the insurance with the manufacturing activity and its qualification as an input service.