M/s. Rane Brake Lining Ltd. Vs Commissioner of GST & Central Excise Puducherry (CESTAT Chennai)
The first issue that arises for consideration is whether the appellant is eligible for credit of the service tax (ST) paid on product liability insurance. The department has denied the same on the ground that it is post-manufacturing activity and the liability arose only when the goods are handed over to the buyers. In fact, as per the explanation given by the appellant, it can be seen that the risk covers the defects with the product. In such cases, when there are defects to the product, the appellant / manufacturer will have to recall the product and thereby incur huge financial loss. The insurance is for covering the financial loss of the appellant / manufacturer and it cannot be considered as a post-manufacturing activity. The finance / raising a capital or adjustment of finances by way of taking insurance etc. falls within the inclusive part of the definition. This cannot be said to be a post-manufacturing activity for the reason that such insurance policies addresses the financial risks of the manufacturer. Further, in the case of Granules India Ltd. (supra), the Tribunal has held that the credit availed on directors’ liability insurance is eligible. I find that the disallowance of credit on this input service is unjustified and requires to be set aside, which I hereby do.
