2016 (12) TMI 212 - AT - Central Excise

CENVAT Credit - Insurance & Auxilliary Services - input service under Rule 2 (l) of the CENVAT Credit Rules 2004 - Held that - The definition of input service after 01.04.2011 has introduced certain exclusions. Sub Clause (c) of the exclusion portion of the definition states that the services of life insurance health insurance etc. which are used primarily for personal use or consumption of any employee is not covered within the definition of input service - From the very object of keyman insurance it is evident that the service is availed for protecting the loss that may occur to the company in the event of death of the keyman. Needless to say that the Managing Director of the company falls within the category of keyman of the organization. In such circumstances the activity of insurance and auxiliary services availed for taking KIP cannot be said to fall within the exclusion portion of the definition. The KIP taken by the appellant is a pure financial step as per the requirement of various exigencies like repayment of loans advances etc. which is intricately related to the financial aspect of manufacturing activity. On happening of contingency as the sum assured is paid to the company it cannot be said that it is for personal consumption. The appellants are eligible for credit - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Irregular availing of CENVAT credit under the category of Insurance & Auxiliary Services.
2. Disallowance of credit, confirmation of demand, interest, and penalty imposed.
3. Eligibility of Keyman Insurance Policy (KIP) as an input service under CENVAT Credit Rules, 2004.

Analysis:
1. The appellant, engaged in cement and clinker manufacturing, availed CENVAT credit on capital goods, inputs, and input services. The department noticed irregular credit availing under Insurance & Auxiliary Services in February 2012. A Show Cause Notice was issued, disallowing the credit, confirming the demand, and imposing penalties. The Commissioner (Appeals) upheld this decision, leading to the current appeal.

2. The appellant's consultant argued that the disputed insurance was a Keyman Insurance Policy (KIP) for the Managing Director, serving the company's crisis needs in case of unforeseen incidents. The appellant contended that the policy, though life insurance, benefits the company, not personal use. The department defended the disallowance, stating KIP is merely life insurance, not essential for daily operations, falling under personal consumption exclusion.

3. The Tribunal analyzed the exclusion clause under the definition of input service post-April 2011. The KIP, examined from the policy, showed a unique character where the sum assured is paid to the company in case of the keyman's death. This demonstrated the policy's purpose to protect the company from losses due to key personnel's demise. The Tribunal referenced a previous case to support the eligibility of credit for input services. Considering the financial implications and necessity of KIP for the company's financial aspects, the Tribunal concluded that the appellant was eligible for credit, setting aside the disallowance and allowing the appeal with consequential reliefs.