Cenvat credit on outdoor catering and extended limitation upheld where employee recoveries were not disclosed

Cenvat credit on outdoor catering service was held inadmissible to the extent the food cost and corresponding service tax were recovered from employees or beneficiaries, because credit cannot be taken on tax ultimately borne by the consumer of the service. The assessee had not produced documentary proof that the service tax element was not recovered, so the denial of proportionate credit was upheld. On limitation, the extended period was held applicable because the relevant recoveries were not disclosed in the returns and came to light only during a later audit; the time-bar plea therefore failed.

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Issues: (i) whether Cenvat credit proportionate to the amount recovered from employees or beneficiaries towards outdoor catering service was admissible; (ii) whether the demand was barred by limitation under Section 11A of the Central Excise Act, 1944.

Issue (i): whether Cenvat credit proportionate to the amount recovered from employees or beneficiaries towards outdoor catering service was admissible.

Analysis: The service tax borne by the ultimate consumer of the service cannot be taken as credit by the manufacturer. Where the cost of food is recovered from employees or beneficiaries, the proportionate credit embedded in that recovery is not admissible. The appellant did not produce documentary evidence to show that the service tax element was not recovered from the employees or beneficiaries.

Conclusion: The issue is decided against the appellant and in favour of the Revenue.

Issue (ii): whether the demand was barred by limitation under Section 11A of the Central Excise Act, 1944.

Analysis: The facts showing recovery from employees or beneficiaries were not disclosed in the returns and came to light only during the second audit. The decisions relied upon on limitation were distinguished because, on the present facts, the department had not been made aware of the relevant recoveries earlier.

Conclusion: The extended period of limitation was held applicable and the plea of time bar failed.

Final Conclusion: The denial of proportionate Cenvat credit and the invocation of limitation under the extended period were upheld, resulting in rejection of the appeal.

Ratio Decidendi: Credit is not admissible to the extent service tax is borne by the employee or beneficiary, and where material facts affecting credit are not disclosed to the department, the extended period of limitation may be invoked.

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