Custom, Excise & Service Tax Tribunal
Cst, Delhi-Iv vs Ernst And Young Associates Llp on 6 October, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
SCO 147-148, SECTOR 17-C, CHANDIGARH-160017
SINGLE MEMBER BENCH
Court-I
Appeal No.ST/60540/2016
(Arising out of OIA No.100/ST/Appeal-II/MK/GGN/2015-16 dt.20.7.16 passed by the Commissioner (Appeals-II), Service Tax, Gurgaon)
Date of hearing:29.06.2017
Date of Decision:06.10.2017
CST, Delhi-IV Appellant
Vs.
Ernst And Young Associates LLP Respondent
Present for the Appellant: Shri R.K.Sharma, AR Present for the Respondent: Shri Tushar Gupta, Advocate Coram: Honble Mr.Devender Singh, Member (Technical) FINAL ORDER NO. 61916/2017 PER: DEVENDER SINGH The brief facts of the case are that the appellant is registered with the Service Tax Department as provider of Management or Business Consultant Service. They filed refund claims under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No.27/12-CE (NT) dated 18.6.2012. One of the services for which the refund claim was rejected by the original adjudicating authority was in relation to the professional indemnity insurance service. Aggrieved from the order of the adjudicating authority, the appellant filed an appeal before the Commissioner (Appeals). The first appellate authority allowed the claim of the assessee, aggrieved from which, the Revenue has filed this appeal.
2. Learned AR for the Revenue submits that the definition of input service has been revised after 1.4.2011 and the definition does not have word the activity relating to business. It was contended that in order to qualify as input service either the service should be used for providing an output service or same should be used in relation to the activity mentioned in Rule 2(l) (ii) of Cenvat Credit Rules, 2004. He further argued that professional indemnity insurance service is neither covered under main definition of input service nor by inclusive part. He argued that the Cenvat credit is available only to these services which are used during provision of service and before delivering it to the recipient and not thereafter. Ld.AR also argued that the impugned service was used only when there was professional mistake or negligence on the part of the employees. He pointed out that case laws relied upon by Ld.Advocate are for period prior to 1.4.2011.
3. Ld.Advocate for the appellant explained the nature of liability insurance and submits that the professional indemnity insurance service is covered both by main portion as well as inclusive part of the definition. He contends that the cover is obtained by the firm and is meant to cover all employees/partners collectively. The contention is that the adjudicating authority had allowed the insurance auxiliary service in relation to general insurance service but disallowed the professional indemnity insurance service on the ground that it has no direct nexus with output service. He relied on the following case laws in his support:
(1) Stock Holding Corpn. Of India Limited vs. CST, Mumbai-II-2015 (39) STR 664 (Tri.-Mumbai) (2) Satyam Computer Services Ltd. vs. CST, Hyderabad-2011 (22) STR 73 (Tri.-Bang.) (3) CST, Delhi-IV, Gurgaon vs. M/s.Ernst & Young Associates LLP [Final Order No.61188/2017 dated 21.06.2017 in Appeal No.ST/60330/2017]
4. Heard the parties and examined the records.
5. I find that the main contention of the Revenue is that after amendment of the definition of input service from 1.4.2011, the word the activity relating to business has been deleted from the definition of input service and the impugned service cannot be said to be directly used for providing any output service. It is also argued that the impugned service is not covered by the inclusive part of the definition and it is used only when output service is complete and delivered.
6. On the question as to whether the professional indemnity insurance service has nexus with output service, I completely agree with the analysis of the Commissioner (Appeals) in the following paragraphs extracted from the Order-in-Appeal:
The Definition of Input Service Rule 2 (I) of Cenvat Credit Rules, 2004 defines the Input Service w.e.f.01.07.2012.
(I) Input service means any service,
(i) used by a provided of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transpiration of inputs or capital goods and outward transportation upto the place of removal but excludes services, -
(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of Section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for-
(a) construction of a building or a civil structure or pa part thereof; or
(b) laying of founding or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable series for which the credit on motor vehicle is available as capital goods; or (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits excluded to employees on vacation such as leave or home travel concession, when such services are used primarily for personal use or consumption of any employee, Definition of Input service for different relevant period makes it amply clear that in order to quality as Input service, any service used by a provider of output service should satisfy the following conditions: It should fall under main part or inclusive part of the definition of input service. It should not be covered in the exclusion part of the definition.
Further, professional indemnity insurance is form of liability insurance that helps in safeguarding the professional advisor and service providing individuals and companies from bearing the full cost of defending against a negligence claim made by a client, and damages awarded in such civil lawsuit. The coverage focuses on alleged failure to perform, on the part of financial loss caused by error or omissions in the service or product sold by the policy holder & is in force during the period specified in policy, for the coverage of output service.
The appellant is engaged in providing consultancy services to its clientele by way of reliable deliverables. Thus, I find that professional indemnity insurance service have nexus with the output service and is covered under definition of input service.
7. I find that the adjudicating authority has allowed refund for general insurance service for employees, equipments and property, for insuring the company against unforeseen circumstance. On the same analogy, the professional indemnity insurance service has to be viewed in the context of providing the consultancy or other professional services, where the assessee has to safeguard itself against unforeseen legal damages/costs due to negligence or other bonafide mistakes of the employees/partners. Hence, the professional indemnity insurance service is an essential ingredient for providing the output service and has direct nexus with the providing of output service.
8. From the perusal of the insurance cover placed on record by the respondent, I find that the cover is not for a particular employee but is a general insurance cover taken by the assessee for the firm and any partner, member or employee to indemnify against legal liability for damages, defence costs etc. As the insurance cover is not meant for personal use or private consumption of any employee, it does not fall in the exclusion clause of the definition of the input service.
9. On the argument of the Revenue that it is used when output service is complete, I find that the commission for such service is paid in the beginning and it provides continuous assurance to the assessee throughout the process of delivery of the output service. Even though the need for its use may come after the output service is delivered, the genesis for use lies in the assurance it provides while service is being delivered. Hence, it is erroneous to say that the service is provided only after output service is delivered.
10. In view of above, I find that there is no infirmity in the impugned order of the Commissioner (Appeals) and the same is upheld.
11. In the result, the appeal filed by the Revenue is dismissed.
(order pronounced in the court in the court on 06.10.2017) (DEVENDER SINGH) MEMBER (TECHNICAL) mk 6