Tribunal deems Keyman Insurance Policy as input service under CENVAT Credit Rules

The Tribunal allowed the appeal, holding that the Keyman Insurance Policy (KIP) qualified as an input service under the CENVAT Credit Rules, 2004. The Tribunal determined that the KIP served the company's financial interests by protecting against losses due to key personnel's death, making it essential for the company's operations. Consequently, the Tribunal set aside the disallowance of credit, confirming the appellant's eligibility for credit and granting consequential reliefs.

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Issues:
1. Irregular availing of CENVAT credit under the category of Insurance & Auxiliary Services.
2. Disallowance of credit, confirmation of demand, interest, and penalty imposed.
3. Eligibility of Keyman Insurance Policy (KIP) as an input service under CENVAT Credit Rules, 2004.

Analysis:
1. The appellant, engaged in cement and clinker manufacturing, availed CENVAT credit on capital goods, inputs, and input services. The department noticed irregular credit availing under Insurance & Auxiliary Services in February 2012. A Show Cause Notice was issued, disallowing the credit, confirming the demand, and imposing penalties. The Commissioner (Appeals) upheld this decision, leading to the current appeal.

2. The appellant's consultant argued that the disputed insurance was a Keyman Insurance Policy (KIP) for the Managing Director, serving the company's crisis needs in case of unforeseen incidents. The appellant contended that the policy, though life insurance, benefits the company, not personal use. The department defended the disallowance, stating KIP is merely life insurance, not essential for daily operations, falling under personal consumption exclusion.

3. The Tribunal analyzed the exclusion clause under the definition of input service post-April 2011. The KIP, examined from the policy, showed a unique character where the sum assured is paid to the company in case of the keyman's death. This demonstrated the policy's purpose to protect the company from losses due to key personnel's demise. The Tribunal referenced a previous case to support the eligibility of credit for input services. Considering the financial implications and necessity of KIP for the company's financial aspects, the Tribunal concluded that the appellant was eligible for credit, setting aside the disallowance and allowing the appeal with consequential reliefs.

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