Input credit allowable on insurance expenses paid for insurance policy to cover expenses relating to pay-roll

Term “Input services” clearly include services relating to setting up, modernization, renovation or repairs of a factory. It inter-alia includes services received in connection with security. Insuring plant and machinery to safeguard against interruption/destruction/break-down and to cover loss of profit due to stoppage of work due to perils like fire, riot, terrorist attack, damages etc. is necessarily a precautionary measure to safeguard against any unwarranted situation of the business. The security of a company does not merely depend upon the physical security and insurance against such perils definitely assures the financial security of the business.

In view of the above, the Commissioner (Appeals) holding that the insurance policy has been used to cover expenses relating to pay-roll when the production is stopped on account of damages of machinery or plant and, therefore, the insurance policy to cover loss of profit would come within the expression for ”activities relating to business” in the inclusive limp of the definition of input services appears legal and reasonable.

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI

Appeal No. E/310/10 & E/CO/42/2010

Arising out of Order-in-Appeal No. 64/2010 Dated: 26.2.2010
Passed by the Commissioner of Central Excise (Appeals), Madurai

Date of Decision: 04.02.2011

COMMISSIONER OF CENTRAL EXCISE, TIRUNELVELI

Vs

M/s THE INDIA CEMENTS LTD.

Appellant Rep by: Shri A B Niranjan Babu, SDR
Respondent Rep by: Shri S Muttuvenkataraman, Adv.

CORAM: M Veeraiyan, Member (T)

Central Excise– CENVAT Credit on insurance service – Insuring plant and machinery to safeguard against interruption/ destruction/ break-down and to cover loss of profit due to stoppage of work due to perils like fire, riot, terrorist attack, damages etc. is necessarily a precautionary measure to safeguard against any unwarranted situation of the business- The services is covered under “activities relating to business”– Rule 2(1) of the CENVAT Credit rules 2004– No infirmity in the order of the Commissioner (Appeals) in allowing the credit.

MISC ORDER NO.77/2011
FINAL ORDER NO.326/2011

Per: M Veeraiyan:

Appeal No. E/310/10 is by the department against order of the Commissioner (Appeals) No. 64/2010 Dated 26.2.2010. Cross Objection No.E/CO/42/2010 is linked to this appeal.

2. Heard both sides.

3. The respondents are manufacturer of cement. They are availing CENVAT credit of duty paid on inputs and capital goods and service tax paid on various input services received and utilized by them. The respondents have taken an Insurance to protect the company from any interruption/destruction/break-down of any property or approach thereof used by the company for the purpose of their business, and the insurance covers risk of “loss of profit due to stoppage of business as a result of insurance peril like fire/riot/strike malicious and terrorist attack, damages etc.” The original authority holding that such insurance services are not connected with the manufacture or sale of cement or with other business activities as defined under Rule 2(1) of Cenvat Credit Rules, 2004 denied the credit and ordered recovery of Rs.3,10,006/- and imposed equal amount of penalty. On appeal by the party, the Commissioner (Appeals) has set aside the order of the original authority.

4. Learned SDR reiterating the grounds of appeal submits that the said insurance does not have any direct nexus with the manufacture and sale activities and therefore, the impugned services cannot be treated as input services. He also submits the decision of the Larger Bench of the Tribunal in the case of GTC Industries reported in – ( 2008-IST-415-CESTAT-MUM-LB) and the decision of the ABB Ltd. Vs. Commissioner of Central Excise, Bangalore reported in 2010 (15) STR 23 = ( 2009-IST-329-CESTAT-BANG-LB) have been challenged by the department before the Hon’ble High Court and the same are pending.

5. Learned Advocate strongly supports the order of the Commissioner (Appeals) after reiterating the submissions in their cross-objection and after referring to the terms of insurance policy.

6.1 I have carefully considered the submissions from both sides and perused the records.

6.2 Rule 2(l) of the CENVAT Credit Rules, 2004 reads as under: –

“i) “input service” means any service,-

(i) used by a provider of taxable service for providing an output service; or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal;”

6.3 A close reading of the above definition clearly indicate that the term “Input services” clearly include services relating to setting up, modernization, renovation or repairs of a factory. It inter-alia includes services received in connection with security. Insuring plant and machinery to safeguard against interruption/destruction/break-down and to cover loss of profit due to stoppage of work due to perils like fire, riot, terrorist attack, damages etc. is necessarily a precautionary measure to safeguard against any unwarranted situation of the business. The security of a company does not merely depend upon the physical security and insurance against such perils definitely assures the financial security of the business.

7. In view of the above, the Commissioner (Appeals) holding that the insurance policy has been used to cover expenses relating to pay-roll when the production is stopped on account of damages of machinery or plant and, therefore, the insurance policy to cover loss of profit would come within the expression for ”activities relating to business” in the inclusive limp of the definition of input services appears legal and reasonable.

8. No valid reasons have been adduced to interfere with the order of the Commissioner (Appeals). Appeal is, therefore, rejected. Cross objection which is merely in support of the order of the Commissioner (Appeals) is also disposed of.

(Pronounced in Court)

NF