2017 (11) TMI 39 - AT - Service Tax

Refund of service tax - input service - professional indemnity insurance service - denial on the ground of nexus - whether the professional indemnity service used by the assessee, who are providing consultancy in taxation and audit service can be considered as input service in terms of definition of input service in the Cenvat Credit Rules? - Held that - the issue is no longer res integra and has been decided in the favour of respondent in their own case in CST, Delhi-IV Vs. Ernst and Young Associates LLP 2017 (10) TMI 456 - CESTAT CHANDIGARH wherein this Tribunal held that the professional indemnity insurance service is an essential ingredient for providing the output service and has direct nexus with the providing of output service - refund allowed - appeal dismissed - decided against Revenue.

Summary

Issues:
Refund of Service Tax on professional indemnity insurance service.

Analysis:
The Revenue appealed against the Commissioner (Appeals) order allowing the refund of Service Tax on professional indemnity insurance service. The period in question was April 2014 to June 2015. The refund was initially rejected by the adjudicating authority, stating a lack of direct nexus with output service. However, the Commissioner (Appeals) allowed the refund, emphasizing the insurance policy's role in insuring business risks and its connection to output service. The Revenue contended that post-April 2011, the service must be used for providing output service to qualify as an input service, which they argued was not the case here.

The key issue was whether professional indemnity service used by a consultancy firm for taxation and audit services could be considered an input service under the Cenvat Credit Rules. The Tribunal referred to a previous case where a similar issue was decided in favor of the respondent. The Tribunal analyzed the definition of input service under the Cenvat Credit Rules, emphasizing that the service should be used by a provider of taxable service for providing an output service. The professional indemnity insurance service was deemed essential for safeguarding against legal damages or costs due to negligence, thus directly linked to providing the output service.

The Tribunal found that the professional indemnity insurance service had a direct nexus with providing consultancy and professional services, safeguarding against unforeseen legal costs. Drawing from the previous judgment in the respondent's favor, the Tribunal concluded that the insurance service was an essential component for providing output service. Therefore, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals) order allowing the refund of Service Tax on the professional indemnity insurance service.