CESTAT Allows CENVAT Credit On Insurance, Forex Hedging, Employee Training For National Engineering Industries

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has allowed the appeal filed by National Engineering Industries Ltd., setting aside the denial of CENVAT credit on insurance services, forex hedging consultancy, and employee training and travel-related services, holding that these were used in relation to its manufacturing business.

The case was decided by Judicial Member Dr. Rachna Gupta, who found that the services in question were connected, directly or indirectly, with the appellant's manufacturing activity and qualified as input services under the Cenvat Credit Rules, 2004, in the facts of the case.

The tribunal observed, “the service tax paid for obtaining these insurance policies which have been used in the business of appellant is eligible for availment of Cenvat credit.”

Addressing the objection that some insurance policies also covered sister-concern premises, the tribunal held that this could not be a ground to deny credit. It noted that the policies covered raw materials, finished and semi-finished goods, stores, and capital goods used in the business and that the service tax on these policies had been paid by the appellant. It also recorded that no evidence had been produced by the department to contradict these submissions.

On forex hedging consultancy, the tribunal noted that the appellant imported raw materials and exported finished goods, requiring payments in foreign exchange. In view of fluctuations in currency rates, consultants were engaged to manage such risks through hedging. The tribunal held that this activity was indirectly related to the manufacturing business and, therefore, eligible for input service credit.

With regard to employee travel and training expenses, the tribunal took note of the appellant's submission that a human resource agency had been engaged to conduct training programmes on communication skills and idea generation.

It held that such services were indirectly related to the manufacture of final products, observing that “productivity of employees increases post the training sessions.”

The dispute arose from a show cause notice proposing disallowance of CENVAT credit amounting to Rs. 38.19 lakh availed during the period from August 2014 to April 2015 on insurance, consultancy, and travel-related services. National Engineering Industries Ltd., which manufactures ball bearings and axle boxes, had challenged the denial.

In the earlier round of adjudication, part of the demand was dropped while the remaining amount was confirmed. The matter was subsequently remanded by the tribunal for fresh adjudication.

After remand, certain portions of the demand were again dropped, but credit on insurance and some consultancy services continued to be denied, leading to the present appeal.

Allowing the appeal, the tribunal set aside the impugned order denying CENVAT credit

For Appellant: Advocate S.C. Vaidyanathan,

For Respondent: Rohit Issar, Authorized Representative