2020 (6) TMI 226 - AT - Service Tax

CENVAT Credit - service tax paid on the insurance cover obtained from the insurance companies - denial of credit on the ground that the service has no nexus with the manufacture of goods - HELD THAT - During the course of adjudication, the appellant clarified that the said insurance cover was not in connection with the manufacturing activity or removal of the goods from their factory but was a separate identifiable service undertaken by them vide which they were providing insurance cover to their buyers - Inasmuch as they were paying service tax on the insurance cover given by them to their buyers, they were entitled to avail the service tax paid on the insurance cover obtained from the insurance companies. However, it is seen that the lower authorities have not adverted to the above facts, though the same were clearly placed before them and have given a finding that inasmuch as the insurance was beyond the place of removal, the same will not be cevatable input - the appellant s case is altogether different and is required to be adjudged from that angle - the matter needs to go back to the lower authorities. Appeal allowed by way of remand.

Issues involved:
1. Eligibility of Cenvat credit on service tax paid for insurance cover.
2. Nexus of insurance cover with the manufacturing activity.
3. Adjudication by lower authorities.
4. Remand of the case for re-adjudication.

Analysis:

Issue 1: Eligibility of Cenvat credit on service tax paid for insurance cover
The appellant, engaged in manufacturing copper articles, availed an open insurance policy for goods removed from their factory gate. They received reimbursement from customers for the insurance policy on a pro rata basis and utilized the service tax credit paid on the insurance policy for further service tax payments. The Revenue contended that the insurance cover lacked nexus with manufacturing, disallowing Cenvat credit, and raised a demand of ?23,82,801 through a show cause notice. The appellant argued that since they provided insurance cover to buyers and paid service tax on it, they were entitled to avail the service tax credit from insurance companies.

Issue 2: Nexus of insurance cover with the manufacturing activity
The lower authorities did not consider the appellant's clarification that the insurance cover provided was a separate service for buyers, not directly related to manufacturing or goods removal. Despite the appellant's explanation, the authorities concluded that insurance beyond the place of removal was not a cevatable input. The appellate member noted the distinct nature of the appellant's case and directed a re-evaluation by lower authorities to consider the appellant's submissions and verify the factual position, emphasizing the need for a different perspective in adjudging the matter.

Issue 3: Adjudication by lower authorities
The lower authorities failed to adequately address the appellant's arguments and factual submissions regarding the nature and purpose of the insurance cover. The appellate member found this oversight and misinterpretation of the appellant's case as grounds for setting aside the impugned order and remanding the case for re-adjudication, highlighting the importance of a thorough review and consideration of all relevant aspects before making a decision on the eligibility of Cenvat credit.

Issue 4: Remand of the case for re-adjudication
The appellate tribunal disposed of the appeal by remanding the case to the original adjudicating authority for a fresh assessment, instructing a re-examination of the appellant's contentions and factual verification. The decision to keep all other issues, including the limitation aspect, open for further consideration indicates the tribunal's intent to ensure a comprehensive and fair review of the matter in light of the appellant's arguments and the specific circumstances of the case.

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