CENVAT credit on reinsurance service upheld as admissible where the service has direct nexus with insurance business.

CENVAT credit of service tax paid on reinsurance received from overseas companies was held admissible as input service because reinsurance was treated as a statutory requirement under the Insurance Act, 1938 and as directly connected with the insurer's business. The tribunal found that reinsuring part of the risk had a clear nexus with the output service of providing insurance to customers, and that the reinsurer rendered service to the insurance company. The view that reinsurance arises only after insurance business is effected was rejected, and the impugned order was set aside.

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Issues: Whether CENVAT credit of service tax paid on reinsurance service received from overseas companies is admissible as input service.

Analysis: Reinsurance was treated as a statutory requirement under Section 101A of the Insurance Act, 1938, and as being directly connected with the insurance business carried on by the appellant. The service of reinsuring a portion of the risk was found to have a nexus with the output service of providing insurance to customers, and the reinsurer was regarded as providing service to the insurance company. The impugned view that reinsurance occurs only after the insurance business is effected was rejected.

Conclusion: The credit was held admissible and the impugned order was set aside in favour of the appellant.

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