CESTAT Chennai has allowed Cenvat credit on product liability insurance availed by the manufacturer for covering the risk of manufacturing defect arising in finished products. The Tribunal for this purpose observed that the insurance was directly connected with manufacturing activity and was also an input service used in relation to manufacture of finished products.
FULL TEXT OF THE CESTAT JUDGEMENT
The brief facts of the case are that appellants are engaged in manufacture of automobile wheels and their parts, accessories and are registered with the Central Excise department. During the course of audit, the department found that the appellant had availed credit of service tax paid on taxguru.in premium for product liability insurance for the period 2012-13 to 2015-16. Department was of the view that the said credit is not eligible as the same is post-sales/post-manufacturing service. Show cause notice was issued proposing to recover the wrongly availed credit along with interest and for imposing penalties. After due process of law, the original authority confirmed the demand, interest and imposed penalty. In appeal, the Commissioner (Appeals) upheld the same. Hence this appeal.
2. On behalf of the appellant, Ld. Counsel Shri M. Kannan appeared and argued the matter. He submitted that the product liability insurance is availed by the appellant to cover the risk of any manufacturing defect in their finished products cleared by them. The appellant supplies the finished products namely, wheels, parts and accessories to automobile manufacturers. These automobile manufacturers provide warranty to the vehicles. The appellant also extends warranty to the wheels manufactured and sold to the automobile manufacturers. In order to indemnify the risk arising out of defects in the products supplied by the appellant, appellant has availed the product liability insurance. It is indeed in relation to the manufacture of finished products of the appellants. He relied upon the following decisions of the Tribunal :
(ii) Sundaram Dynacast Pvt. Ltd. Vs CCE Chennai-II 2018 (2) TMI 2 – CESTAT CHENNAI.
(iii) Granules India Ltd. Vs CCE & CST Hyderabad 2017 (5) TMI 1079 – CESTAT HYDERABAD.
(iv) Neo Foods Pvt. Ltd. Vs CCE, ST and Customs Bangalore-II 2017(1) TMI 151 – CESTAT BANGALORE.
3. The Ld. A.R. Shri S. Govindarajan supported the findings in the impugned order. He submitted that the appellant is only manufacturing wheels and parts of automobiles. The warranty is extended to the buyer of the vehicle only by the automobile manufacturer and not by the appellant. Therefore, the product liability insurance cannot be considered as an input service for the appellant. Further, these services are availed as a post-manufacturing activity since the liability is sought to be covered for the vehicles that have been already sold to the customers. He relied upon para-5 of the SCN to argue that it is only in the nature of a compensation that is paid when the warranty is claimed for manufacturing defect of the goods or for personal injury or property damage to anyone that is caused by the defect in the goods.
4. Heard both sides.
5. The issue is whether the appellant is eligible for cenvat credit of service tax paid on product liability insurance. It is explained by the Ld. counsel for the appellants that they are extending the warranty benefit to the automobile manufacturers with regard to the wheels and other parts supplied by them. The product liability insurance is availed by the appellant for covering the risk of any manufacturing defect arising out of the finished products cleared by them. When the defects are found and put forward only after use of the vehicle by the purchaser of the vehicle, in such cases, the automobile manufacturer has to compensate / satisfy the claim of the customer which is thereafter reimbursed by the appellant. In such cases to cover the risk of such payment, appellant has to avail product liability insurance. Indeed, this insurance is directly connected with the manufacturing activity of the appellant and is also an input service used in relation to the manufacture of the finished products. The decisions relied taxguru.in by the appellant have also discussed in detail as to how the said services will qualify as an ‘input service’. After appreciating the facts, evidence as well as following the decisions in Rane Brake Lining Ltd. (supra) and Sundaram Dynacast Pvt. Ltd. (supra), I am of the view that denial of credit is unjustified. The impugned order is set aside. Appeal is allowed with consequential benefits, if any, as per law.
(dictated and pronounced in court)