2018 (11) TMI 814 – CESTAT HYDERABAD – TMI – 100% EOU – CENVAT Credit – input services – product liability insurance – product recall liability insurance – place of removal – Department has denied the same on the ground that it is a post manufacturing activity and the liability arose only after goods were handed over to the buyers – Held that:- It can be seen that the risk covers the defects with the products. In such cases, when there are defects in the products, the appellant/manufacturer will have to recall the product and thereby incur huge financial loss. The insurance is for covering financial loss of the appellant/manufacturer and it cannot be considered as a post manufacturing activity. The finance or raising of capital or adjustment of finances by way of taking insurance etc., falls within the inclusive part of the definition.
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Tribunal in the case of New Foods Pvt Ltd Vs CCE & ST, Bangalore-II [2017 (1) TMI 151 – CESTAT BANGALORE] considered an identical issue and held
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product liability insurance for its goods manufactured at its facility for the period from 17.10.2014 to 16.10.2016. A show cause notice dated 06.08.2015 was issued on the basis of their ER-2 returns alleging wrong availment and utilization of service tax credit on services such as insurance on goods storage, marine/transit insurance, telecom services, rental charges of buildings not related to factory and not connected with removal of goods. The adjudicating authority held some of these services as eligible. However, he held that product liability insurance and the product recall liability insurance are services utilized after clearance of their final products, after the place of removal and after storage up to the place of removal and accordingly, held that these services are not input services as defined under Rule 2(l) of Cenvat Credit Rules, 2004. He confirmed the demand of ₹ 67,277/- along with interest and also imposed equal penalty under Rule 15(1) of Cenvat Credit Rules,
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or bodily injury or disease to any third party, accidental damage to property due to any defect in the product manufactured. The product recall liability insurance covers the risk or loss arising out of any recall of the product from the market due to accidental omission or introduction or substitution of a component or substance during manufacturing process. The Ld. Advocate strongly argued that it is very much evident that the impugned insurance covers are for risks accrued in the process of manufacturing by the appellant which clearly shows the direct nexus with the manufacturing process and also that the benefit of such insurance is received right during the manufacturing process as it has to cover the very defects that may arise during the manufacturing process in the factory. The Ld. Advocate also submits that apart from third party claims due to inadvertent mistakes, there may be risk of costs arising from Consumer Protection Act, 1986, Legal Metrology Act, 2009, etc., and it is
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ers. As per the explanation given by the appellant, it can be seen that the risk covers the defects with the products. In such cases, when there are defects in the products, the appellant/manufacturer will have to recall the product and thereby incur huge financial loss. The insurance is for covering financial loss of the appellant/manufacturer and it cannot be considered as a post manufacturing activity. The finance or raising of capital or adjustment of finances by way of taking insurance etc., falls within the inclusive part of the definition. This cannot be said to be opposed to manufacturing activity for the reason that said insurance policies addresses the financial risks of the manufacturer. It is not in dispute that the appellant s contention to use the insurance policies taken by them was in respect of their product and business activities. The lower authorities have summarily disposed of the contention recording that these insurance policies were not for manufacture of finish
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