Input service refund for business insurance and effluent treatment plant upheld where both were integral to manufacturing operations.

Commercial general liability insurance used to protect business risk was treated as an input service, so refund of unutilised CENVAT credit could not be denied merely because the cover was not for personal accident or medical claims. Setting up an effluent treatment plant, being a statutory and integral part of the manufacturing arrangement, was also treated as an input service; the exclusion for construction activity was held inapplicable on the facts. The denial of refund on both services was therefore set aside, and the assessee was granted consequential relief.

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Issues: (i) Whether refund of unutilised CENVAT credit could be denied in respect of insurance service taken as commercial general liability insurance. (ii) Whether refund of unutilised CENVAT credit could be denied in respect of setting up of an effluent treatment plant on the ground that it was construction activity outside the scope of input service.

Issue (i): Whether refund of unutilised CENVAT credit could be denied in respect of insurance service taken as commercial general liability insurance.

Analysis: The insurance policy on record showed that the cover was for commercial general liability and not for claims relating to accidents, personal injury or personal medical expenses. The service was treated as one protecting the general business risk of the assessee. On that basis, the service was held to fall within the scope of input service for the purpose of refund of unutilised credit under the applicable refund scheme.

Conclusion: Refund could not be denied on the insurance service, and the claim was allowed in favour of the assessee.

Issue (ii): Whether refund of unutilised CENVAT credit could be denied in respect of setting up of an effluent treatment plant on the ground that it was construction activity outside the scope of input service.

Analysis: The exclusion clause in the definition of input service was held to have been misapplied. The effluent treatment plant was found to be a statutory requirement for carrying on manufacturing activity, and the photographs and invoices showed that its setting up was part of the manufacturing arrangement rather than a mere civil construction activity. It was therefore treated as an integral part of the manufacturing setup and covered by the definition of input service.

Conclusion: Refund could not be denied on the effluent treatment plant service, and the claim was allowed in favour of the assessee.

Final Conclusion: The impugned denial of refund on both disputed services was set aside, and the assessee succeeded in the appeals with consequential relief.

Ratio Decidendi: Services that are directly connected with the business risk of export operations or are a statutory and integral part of the manufacturing setup qualify as input services for refund of unutilised CENVAT credit, and cannot be denied merely by characterising them as excluded construction-related services.

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