Input service credit allowed for product recall insurance premium linked to business use and manufactured goods

Insurance premium paid for a recall cover on damaged products qualified as input service under Rule 2(i) of the Cenvat Credit Rules, 2004 because the service had a direct nexus with the manufacturer's business and with the manufactured final products. The broad definition of input service extends to services used directly or indirectly in relation to manufacture and to business-related services, so credit could not be denied merely because the insurance was not used in the actual manufacturing process. The service tax paid on the premium was therefore admissible as Cenvat credit.

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Issues: Whether service tax paid on insurance premium for recall of damaged products was admissible as Cenvat credit as an input service.

Analysis: The definition of input service under Rule 2(i) of the Cenvat Credit Rules, 2004 is wide and includes services used directly or indirectly in relation to manufacture as well as services relating to business. The insurance cover was obtained in connection with the manufacturer's business requirement and had a direct nexus with the manufactured final products, since it related to reimbursement of expenses incurred for recalling products due to damage or injury caused by use or consumption. In view of the broad scope of the definition and the Tribunal's earlier view on business-related services, the credit could not be denied merely because the service was not used in the actual manufacturing process.

Conclusion: The service tax paid on the insurance premium was admissible as Cenvat credit and the appeal succeeded.

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