Re-insurance services as input service support CENVAT credit for insurers where the service directly supports insurance operations.

Re-insurance services procured by an insurer were treated as input services because they were used in the course of providing the output insurance service and had a direct nexus with the business of insurance. The service was described as integral to the life of the policy and legally required under the Insurance Act, 1938, so CENVAT credit was available under the CENVAT Credit Rules, 2004. Denial of credit was held to create impermissible double taxation where tax had already been paid on the re-insurance service.

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Issues: Whether re-insurance services procured by an insurer qualify as an input service for availing CENVAT credit under the CENVAT Credit Rules, 2004.

Analysis: The statutory definition of input service requires that the service be used by a provider of taxable service for providing the output service. Re-insurance in the present context was not an independent or post-completion activity, but an integral part of the insurance business, continuing with the life of the policy and required by law under the Insurance Act, 1938. The service was therefore treated as having a direct nexus with the output service, and denial of credit would result in impermissible double taxation where tax had already been paid on the re-insurance service.

Conclusion: Re-insurance service is an input service eligible for CENVAT credit, and the revenue's challenge fails.

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