Case Law Details
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.
6. The second issue for consideration is regarding the eligibility of credit on service tax paid on Director Sitting Fees. The said issue is covered by the decision in the case of SKN Organics P. Ltd. (supra). Further, it is also to be stated that it is the duty of the director to attend the meetings and therefore the service tax paid on such fees is eligible for credit.
FULL TEXT OF THE CESTAT JUDGMENT
Brief facts are that the appellants are manufacturers of Railway Brake Blocks, Disc Pads and Clutch Facings. They were availing the facility of CENVAT credit on inputs, capital goods and input services. Show cause notice was issued proposing to disallow the credit on various input services and after due process of law, the original authority allowed the credit on various services. The credit in respect of service tax paid on Director Sitting Fees as well as on premium for product liability insurance was disallowed. In appeal, Commissioner (Appeals) upheld the same. Hence this appeal.
2. On behalf of the appellant, ld. counsel Ms. S. Yogalakshmi submitted that the operative clause of the product liability insurance mentions that appellant incurred premium charges in respect of the product defects if any. The said insurance covers the risk which includes product liability, product guarantee, financial loss and product risk insurance for product linings, disc pads, clutch facings and railway brake blocks. This service was availed and service tax was paid on such expenses in order to cover the financial loss if any occurred because of defects in the finished products manufactured and cleared by the appellant and thus it has a direct nexus with the manufacturing activity carried out by them. Thus the denial of credit on product liability insurance is incorrect. She relied upon the decision in the case of Granules India Ltd. Vs. Commissioner of Central Excise, Hyderabad – 2017 (5) TMI 1079 – CESTAT Hyderabad. With regard to the disallowance of credit on fees paid for director sitting, she submitted that they have discharged the liability under reverse charge mechanism and it is incumbent upon the Director to attend the meetings and therefore the same is directly connected to the manufacturing activity of the appellant. To support her argument, she relied upon the decision in the case of SKN Organics P. Ltd. & Anr. Vs. Commissioner of Central Excise, Puducherry vide Final Order Nos. 41948 & 41949/2016 dated 21.10.2016.
3. The ld. AR Shri R. Subramaniam supported the findings in the impugned order. He adverted to para 7 of the impugned order and submitted that once the goods are sold and the products are handed over to the buyers, any service availed by them would be a post-manufacturing activity and therefore the insurance policy taken for product liability cannot be held to be an input service. With regard to the director sitting fee, he submitted that this has no nexus to the manufacturing activity.
4. Heard both sides.
5. The first issue that arises for consideration is whether the appellant is eligible for credit of the service tax 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.
6. The second issue for consideration is regarding the eligibility of credit on service tax paid on Director Sitting Fees. The said issue is covered by the decision in the case of SKN Organics P. Ltd. (supra). Further, it is also to be stated that it is the duty of the director to attend the meetings and therefore the service tax paid on such fees is eligible for credit.
7. From the discussions made above, I am of the view that the disallowance of credit on the impugned services is incorrect and requires to be set aside, which I hereby do. The impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Dictated and pronounced in open court)
