2026 (1) TMI 1012 - AT - Service Tax

Cenvat Credit for professional indemnity insurance affirmed where a direct nexus with output services exists; appeal allowed.

Issue concerns entitlement to Cenvat credit of service tax paid on professional indemnity insurance. The analysis finds that where the insurance relates ... Demand of Service Tax - Cenvat Credit of Service Tax on professional indemnity insurance - Nexus between input and output service - Entitlement to credit for service providers - HELD THAT:- We find that this issue is no more res integra and has been settled by the Tribunal in favour of the assessees in various decisions, whereby the Tribunal has held that the assessees are entitled to Cenvat Credit of Service Tax paid on professional indemnity insurance. In the case of KPMG India Ltd. [2017 (9) TMI 1261 - CESTAT CHANDIGARH], has also held that the asseessee who is the service provider and the services have been received by the assessee in the course of their business of providing output service, the assessee is entitled to avail the Cenvat Credit on the services used for their business of providing output service. We also find that the professional indemnity insurance taken by the Appellant is related to the business carried on by the Appellant and there is a direct and visible nexus between input services and output services rendered by the Appellant, therefore, Cenvat Credit of the Service Tax paid on professional indemnity insurance would be allowed to the Appellant. Thus, we are of the considered opinion that the impugned order is not sustainable in law, therefore, we set aside the same and allow the appeal of the Appellant. Issues: Whether Cenvat Credit of Service Tax paid on professional indemnity insurance is allowable to a service provider who obtains such insurance in relation to the business of providing taxable output services.Analysis: The issue was considered in the context of the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004. The analysis applies the test whether the insurance service falls within the main or inclusive part of the definition and is not covered by the exclusions, and whether there exists a direct nexus between the professional indemnity insurance and the output services rendered by the provider. Prior authoritative decisions holding that professional indemnity insurance constitutes an input service for service providers engaged in consulting/professional services are followed, and those principles are applied to the facts showing the insurance was taken to cover liabilities arising from the delivery of the appellant's output services.Conclusion: Cenvat Credit of Service Tax paid on professional indemnity insurance is allowable to the service provider; the impugned denial of credit is set aside and the appeal is allowed in favour of the assessee.