2012 (5) TMI 447 - AT - Service Tax

High Court: Service tax on canteen services is input; Tribunal dismisses Revenue's appeal

The Hon'ble High Court ruled in favor of the respondents, holding that service tax paid on canteen services qualifies as an input service in the ... Input service - nexus or integral connection - Cenvat Credit Rules, 2004 - Rule 2(l) - mandatory employer canteen under Section 46, Factories Act, 1948 - credit disallowance where service tax borne by workerInput service - nexus or integral connection - Cenvat Credit Rules, 2004 - Rule 2(l) - mandatory employer canteen under Section 46, Factories Act, 1948 - The outdoor caterer's (canteen) service qualifies as an input service for the purpose of Cenvat credit. - HELD THAT: - The Tribunal applied the principle in Ultratech Cement Ltd., construing the scope of 'input service' in Rule 2(l) of the 2004 Rules by reference to the ratio in Maruti Suzuki Ltd., holding that services having a nexus or integral connection with manufacture or the business of manufacture qualify as input services. Provision of canteen facilities is mandatory under Section 46 of the Factories Act, 1948, and furthers the process of manufacture. Therefore the caterer's service bears the requisite nexus/integral connection with manufacture and qualifies as an input service entitling the respondent to Cenvat credit. The Tribunal found no infirmity in the Commissioner (Appeals) order allowing credit. [Paras 4, 5, 6]Canteen/caterer service is an input service under Rule 2(l) and the Commissioner (Appeals) order allowing credit is upheld.Credit disallowance where service tax borne by worker - input service - The Revenue's contention that part of the caterer service cost (and corresponding service tax) was borne by workers was not a matter raised in departmental proceedings and was not accepted as a basis to deny credit. - HELD THAT: - The Tribunal noted that the question remitted by the High Court related to whether canteen services constitute input services and that the factual contention regarding the portion of cost borne by workers was not part of the departmental proceedings or the question before the High Court. Having found the service to be an input service on nexus grounds, the Tribunal did not entertain the Revenue's belated contention that service tax borne by workers disqualifies credit, observing that this was not litigated in the earlier proceedings. [Paras 4, 5]The contention that workers bore part of the service cost does not negate the finding that the service is an input service and cannot be used to deny credit in these proceedings.Final Conclusion: The Tribunal dismissed the department's appeal, upheld the Commissioner (Appeals) order allowing Cenvat credit on the caterer's (canteen) service for March 2005 to March 2006, and rejected the Revenue's contention regarding worker-borne cost as not part of the departmental proceedings. Issues:- Interpretation of whether service tax paid on canteen services is considered an input service in the manufacture of the final product.Analysis:The appeal in question arose from the Hon'ble High Court's order remanding the case to decide whether service tax paid on canteen services qualifies as an input service for the manufacture of the final product, in accordance with the decision in the Ultratech Cement Ltd. case. The respondents, engaged in manufacturing cigarettes, packing materials, and printing inks, availed CENVAT credit on service tax paid for outdoor caterer's services. The lower adjudicating authority disallowed the credit, leading to an appeal by the respondents. The Commissioner (Appeals) allowed the appeal, prompting the department to appeal to the Tribunal. A Larger Bench of the Tribunal ruled in favor of the respondents, which was challenged by the department in the Hon'ble Bombay High Court. The key question before the High Court was whether service tax paid on canteen services qualifies as an input service in the manufacture of the final product.The learned JDR contended that as per the Ultratech Cement Ltd. case, if the service tax is borne by the ultimate consumer, the manufacturer cannot claim credit for that portion of the tax. However, the learned Counsel argued that the cost of the canteen service being borne by the worker was not a point of contention in the case. Upon careful consideration, the Tribunal referred to the Ultratech Cement Ltd. case, emphasizing that services with a nexus to the manufacture of final products and the business of manufacturing would qualify as input services under Rule 2(1) of the Cenvat Credit Rules, 2004. The provision of canteen facilities to workers, mandated under the Factories Act, was deemed integral to the manufacturing business and thus qualified as an input service. The Tribunal found no merit in the Revenue's argument regarding the portion of the service cost borne by workers, as it was not a part of the proceedings at any stage, as evident from the High Court's question.In conclusion, the Tribunal upheld the order of the Commissioner (Appeals) and dismissed the Revenue's appeal, emphasizing the integral connection between canteen services and the business of manufacturing the final product, qualifying it as an input service under the relevant rules.