2011 (4) TMI 1071 - HC - Service Tax

Court upholds Cenvat credit for service tax on outdoor catering expenses, integral to manufacturing process

The High Court affirmed the assessee's entitlement to claim Cenvat credit for service tax paid on outdoor catering services, dismissing the revenue's ... Cenvat credit - input service - outdoor catering service - service utilized directly or indirectly in or in relation to the manufacture of final products - statutory obligation to provide canteen under the Factories Act - manufacturer entitled to take credit under the scheme of the Cenvat Credit Rules, 2004Cenvat credit - input service - outdoor catering service - service utilized directly or indirectly in or in relation to the manufacture of final products - manufacturer entitled to take credit under the scheme of the Cenvat Credit Rules, 2004 - statutory obligation to provide canteen under the Factories Act - Assessee entitled to avail Cenvat credit for service tax paid on outdoor catering (canteen) services - HELD THAT: - The Tribunal's finding that outdoor catering services used to maintain a canteen on factory premises qualify as an input service was affirmed. The Court applied the test that any service utilized by the manufacturer, directly or indirectly, in or in relation to the manufacture of final products (or in relation to activities relating to business) falls within the definition of input service. Outdoor canteen services, rendered pursuant to the statutory obligation on the employer, are not mere charity but an expense that forms part of the cost of production and therefore are services utilized in relation to manufacture. The Court relied on the Division Bench precedent which held that services not expressly listed in the definition may nonetheless qualify as input services if they satisfy the requisite tests, and noted that Rule 3 and the scheme of the Cenvat Credit Rules, 2004 permit manufacturers to take credit of service tax paid on such services. In view of that precedent and the application of the above legal principle, the Tribunal's allowance of Cenvat credit for the service tax paid on outdoor catering was upheld. [Paras 6]Appeal dismissed; assessee entitled to Cenvat credit for service tax paid on outdoor catering service for the period April 2007 to March 2008.Final Conclusion: The Tribunal's allowance of Cenvat credit on service tax paid for outdoor catering (canteen) services was upheld, the appeal by the revenue is dismissed and the assessee's entitlement to credit for the stated period confirmed. Issues: Entitlement to Cenvat credit for service tax paid on outdoor catering service.Analysis:The judgment involves an appeal by the revenue against the Tribunal's decision allowing the assessee to avail Cenvat credit for service tax paid on outdoor catering services. The assessee, a manufacturer of CNC lathes and components, had availed Cenvat credit on service tax paid for outdoor catering services during a specific period. A show cause notice was issued, leading to a confirmation of demand, interest, and penalty by the Assessing Authority. The Appellate Authority later set aside this order, allowing the appeal. The revenue, aggrieved by this decision, appealed to the Tribunal, which relied on a previous Larger Bench decision to rule in favor of the assessee, stating that outdoor catering services for maintaining a canteen qualified as an input service eligible for Cenvat credit. The High Court was tasked with determining whether the assessee was entitled to such credit.The High Court referred to a similar case before a Division Bench, where it was established that any service used directly or indirectly in manufacturing final products constitutes an input service. The definition of input service includes various services explicitly, such as transportation of inputs or capital goods. The Court emphasized that the test is whether the service utilized by the assessee is for manufacturing the final product, directly or indirectly. The Court further highlighted that services not expressly mentioned in the definition clause could still qualify as input services if used by the manufacturer in relation to the manufacture of final products or business activities. In the context of outdoor canteen facilities provided by the assessee due to statutory obligations, the Court noted that such expenses were considered in fixing the final product's price and were not considered charity but a legal obligation.The judgment concluded that the Tribunal's decision was legal and valid, in accordance with the law, and did not have any legal infirmity warranting interference. The Court upheld the assessee's entitlement to Cenvat credit for service tax paid on outdoor catering services, dismissing the revenue's appeal based on the precedent set by the Division Bench's prior judgment. The appeal was thus dismissed, affirming the assessee's right to claim Cenvat credit for the service tax paid on outdoor catering services.