2011 (3) TMI 1373 - HC - Service Tax

Expenses for state function (shamiyana, photography) qualify as input services; service tax admissible as CENVAT credit

HC held that expenses for a state function (shamiyana, photography, related services) were not personal benefits but had an integral nexus with the ... Eligibility for input service tax credit - evasion of duty and willful suppression of facts - nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product - Held that:- The assessee is in no way personally benefitted by any of these expenses as there is no personal interest involved. On the contrary it shows they are concerned with the culture of the State, the welfare of its employees and a celebration of such a momentous occasion will go a long way in preserving the peace in the locality. Therefore in our view those expenses incurred towards putting up Shamiyana, photography services, etc., do fall within the activities relating to business and consequently input service and the service tax paid on such service could be availed as CENVAT credit by the assessee. The State function arranged once in a year, for the welfare of the employees of the industry and in order to protect and preserve the culture of the State the said function cannot be separated from the business of manufacture of final product. In order to run the industry without any problem from the insiders or from outsiders, incurring of such expenses has unfortunately become a part of running the establishment. If a Multi National Company celebrates the 1st November as a Karnataka Rajosthava Day and spends lavishly for their employees and also sought participation in the said function by the jurisdictional police and on that momentous occasion, the expenses incurred for taking photography or providing Shamiyana service and inaugural of police station it cannot be said that such expenses have no nexus or integral connection with the manufacture of final product as well as business of manufacture of final products. Keeping in view the sentiments of the particular State the problems which are faced in ail these establishment in a Linguistic State and as a reasonable employer if he wants to satisfy the aspirations of the people in a lawful manner, he cannot be found fault with. Thus, we are satisfied from the material on record that the expenses incurred by the assessee would fall within the definition of input service and they are entitled to CENVAT credit. Hence, the substantial question of law is answered in favour of the assessee and against the revenue and accordingly CEA 47/2009 is allowed and CEA 100/2008 is dismissed. Issues Involved:1. Eligibility for input service tax credit on Shamiyana services and photography services.2. Allegation of intention to evade duty and willful suppression of facts.Issue-wise Detailed Analysis:1. Eligibility for Input Service Tax Credit on Shamiyana Services and Photography Services:The core issue revolves around whether expenses incurred for Shamiyana services and photography during Kannada Rajyostava Day and the inaugural function of Kengeri Police Station qualify as 'input services' under the CENVAT Credit Rules, 2004. The assessee argued that these expenses are related to business activities and should be eligible for input service tax credit. The definition of 'input service' under Rule 2(l) includes services used in relation to business activities like accounting, auditing, financing, and security, among others. The assessee contended that celebrating Kannada Rajyostava Day and involving the police in such functions ensures the security of the establishment and maintains industrial peace, thus falling under 'activities relating to business.'The Tribunal initially rejected this claim, stating that such social functions do not fall within the ambit of business activities. However, the High Court interpreted the inclusive definition of 'input service' to be extensive, covering various business-related activities, including security. The Court emphasized the importance of such celebrations in maintaining industrial peace and protecting the establishment, thus qualifying these expenses as input services eligible for CENVAT credit.2. Allegation of Intention to Evade Duty and Willful Suppression of Facts:The second issue pertains to whether the assessee had the intention to evade duty and willfully suppressed facts, which would attract the proviso to Section 11A of the Central Excise Act, 1944. The Tribunal had concluded that there was no willful suppression or intention to evade duty, setting aside the demand on the basis that the claim was barred by time. The revenue challenged this conclusion, arguing that the show cause notice had indeed alleged suppression of facts.The High Court upheld the Tribunal's finding, noting that the expenses were genuinely incurred for business-related activities and there was no personal benefit to the assessee. The Court found that the expenses were aimed at preserving the culture of the State, ensuring the welfare of employees, and maintaining peace and security, all of which are integral to the business. Consequently, the substantial question of law was answered in favor of the assessee, allowing CEA 47/2009 and dismissing CEA 100/2008.Conclusion:The High Court concluded that expenses incurred for Shamiyana services and photography during Kannada Rajyostava Day and the inaugural function of Kengeri Police Station fall within the definition of 'input service' under the CENVAT Credit Rules, 2004. These expenses are related to business activities, ensuring security and maintaining industrial peace. The Court also upheld the Tribunal's finding that there was no willful suppression or intention to evade duty by the assessee. Thus, the assessee was entitled to CENVAT credit for these expenses, and the revenue's appeal was dismissed.