2019 (6) TMI 194 - AT - Central Excise

CENVAT Credit - input services - insurance related services - HELD THAT - The services of insurance as found from the list are integral to the safety. The value of plant and machinery running into thousands of crores are required to be safeguarded against various risks. Without such insurance services in case of any mis -happening, the enterprise would be at great loss and can never re-start its operations. We also find that the cost of such services stands included in the cost of production/ value of goods as certified by the Cost Accountant. There are no doubt that the services are integral part of cost of goods manufactured and would merit classification as Input Service . Unless and until a business is safeguarded against risk and losses it cannot work continuously. The Appellant are eligible to avail credit of service tax paid on Insurance Services as all are related to secure the plant and machinery and thus merit consideration as Input Services - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Disallowance of credit on insurance-related services for a manufacturer.

Analysis:
The appeal was filed against an order disallowing credit on insurance-related services for the appellant as a manufacturer. The appellant, engaged in manufacturing goods, had various insurance policies covering different aspects of their operations. The show cause notice proposed denying credit on service tax for these policies, stating they were not essential for the manufacturing process. The demand was confirmed in the impugned order, asserting that the insurance coverage was not integral to the operations of the petrochemical complex. The appellant contended that these services were essential for plant safety and efficiency, citing precedents where credits for similar insurance services were allowed. The appellant argued that insurance services formed part of the cost of production and qualified as input services. The revenue supported the findings of the impugned order.

The Tribunal found that the insurance policies were integral to safeguarding the petroleum complex, as the services were crucial for protecting plant and machinery worth significant amounts against risks. The cost of these services was included in the cost of production, as certified by a Cost Accountant. The Tribunal emphasized that without such insurance services, the enterprise would face substantial losses and operational disruptions in case of mishaps. Referring to previous judgments, including the appellant's own cases, the Tribunal concluded that the insurance services were integral to the cost of goods manufactured and thus qualified as input services. The Tribunal highlighted that services used in relation to business activities should be considered input services. Ultimately, the impugned order was set aside, and the appeal was allowed, granting the appellant the credit for service tax paid on insurance services related to securing plant and machinery.

The judgment emphasized the importance of insurance services in safeguarding business operations, especially in industries where significant assets need protection against various risks. By considering the inclusion of insurance costs in the valuation of final products and the essential role of insurance in continuous business operations, the Tribunal established that such services should be classified as input services. The decision was supported by precedents and a thorough analysis of the necessity and integration of insurance services in the manufacturing process, ultimately leading to the allowance of the credit for the appellant.