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 directly to the business and there is a direct and visible nexus between input services and output services rendered by the provider, the service tax credit is permissible. Prior tribunal precedents treating the matter in favour of assessees are applied as persuasive authority. Consequence: credit for service tax on professional indemnity insurance is allowed and the impugned denial is set aside.

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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.

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