Cenvat Credit on Insurance, Hedging & HR Training: Detailed Analysis of National Engineering Industries Ltd. vs Commissioner of CGST (CESTAT Delhi)

The decision in National Engineering Industries Ltd. vs Commissioner of CGST by the CESTAT Delhi provides important clarity on the scope of “input services” under the Cenvat Credit Rules, 2004, particularly in relation to:

  • Insurance policies covering capital goods, raw materials, finished and semi-finished goods
  • Professional/consultancy services for foreign exchange risk management (hedging)
  • Employee training, including travel and tour-related services
  • Services relating to factory design and layout, where invoices bear a different address

This order, delivered on 20.04.2026, ultimately sets aside denial of Cenvat credit and allows the claim of the assessee, a manufacturer of Ball Bearings & Axle Boxes, on most of the disputed services.

Background of the Case

Nature of Business and Services Involved

The assessee, National Engineering Industries Ltd., is engaged in the manufacture of Ball Bearing & Axle Box. During the period August 2014 to April 2015, the assessee availed Cenvat credit of service tax paid on several services, including:

  • Insurance policies (Fire Policy, Marine Policy, stock at job workers/depots, renewal policies for fire at other offices/depots/job workers, etc.)
  • Professional fees/consultancy services (including foreign exchange and financial advisory services)
  • Airfare, taxi and other travel-related expenses
  • Services connected with factory design, drawings and layout

The department disputed the eligibility of these services as “input services” under Rule 2(l) of the Cenvat Credit Rules, 2004 and issued:

Show Cause Notice No. 84&86/83/2015 dated 03.09.2015, proposing to disallow Cenvat credit of Rs. 38,19,851/-.

First Round of Adjudication and Appeal

  1. Order-in-Original No. 09/2016-17 dated 03.06.2016

    • Demand of Rs. 13,83,790/- relating to Professional/Consultancy fees was dropped.
    • Balance Cenvat credit of Rs. 24,36,061/- was confirmed.

  2. Order-in-Appeal No. 156/2018 dated 21.06.2018

    • Commissioner (Appeals) upheld the confirmation of the remaining demand.

  3. The assessee appealed to the Tribunal.

    • Final Order No. 50247/2020 dated 29.01.2020
    • Matter remanded to the original authority for fresh adjudication with specific directions to examine evidence on insurance and other input services.

Second Round of Adjudication and Appeal

  1. Order-in-Original No. 02/2021-22 dated 26.07.2021 (post-remand):

    • Further amount of Rs. 1,79,898/- relating to Professional/Consultancy fees was dropped.
    • Remaining Cenvat credit of Rs. 22,56,163/- was disallowed.
    • Interest was demanded and penalty of Rs. 2,25,616/- imposed.

  2. Order-in-Appeal dated 05.12.2023 (second appeal stage):

    • Cenvat credit of Rs. 3,25,332/- on taxi and airfare expenses allowed.
    • Cenvat credit of Rs. 9,32,059/- on part of Professional/Consultancy fees allowed.
    • Penalty reduced to Rs. 1,93,053/-.
    • Cenvat credit of Rs. 9,98,772/- on Insurance services was held ineligible.
    • Appeal partly allowed, but Insurance and some other credits remained disallowed.

Still dissatisfied, the assessee carried the matter again to the Tribunal, leading to the present decision.

The controversy before CESTAT Delhi in this round focused on:

  • Whether insurance services were used in or in relation to manufacture of final products, and whether coverage of sister concerns could be a ground to deny credit.
  • Whether foreign exchange risk management (hedging) services could be treated as input services.
  • Whether employee training, HR-related travel and tour services are input services.
  • Whether Cenvat credit is deniable merely because invoices bear a different address, despite tax being actually paid by the assessee and services used for its business.
  • Whether the department had discharged its burden to prove ineligibility, and whether the assessee failed in its burden under Rule 9(5) of the Cenvat Credit Rules, 2004.

Submissions by the Assessee

1. Insurance Services as Input Services

The assessee contended: