2015 (3) TMI 632 - HC - Service Tax

Court allows Cenvat credit for catering & rent-a-cab services, rejects Revenue's appeal. Retrospective notification not applicable.

The Court upheld the admissibility of Cenvat credit for outdoor catering and rent-a-cab services, ruling in favor of the assessees. The Revenue's appeal ... Benefit of Cenvat credit - outdoor catering services and rent-a-cab services - Services provided in the factory for employees of the factory - According to the Department, outdoor catering services and rent-a-cab services could not be treated as 'input service' as defined under the Cenvat Credit Rules - whether the assessee can utilise the cenvat credit facilities in respect of outdoor catering services and rent-a-cab services, provided in the factory for its employees, as input service - Held that:- assessee carrying on the business of manufacturing cement by employing more than 250 workers is mandatorily required under the provisions of the Factories Act, 1948 to provide canteen facilities to the workers. Failure to do so entails penal consequences under the Factories Act, 1948. To comply with the above statutory provision, the assessee had engaged the services of a outdoor caterer. Thus, in the facts of the present case, use of the services of an outdoor caterer has nexus or integral connection with the business of manufacturing the final product namely, cement. Hence, in our opinion, the Tribunal was justified in following the Larger Bench decision of the Tribunal in the case of GTC Industries Ltd. (2008 (9) TMI 56 - CESTAT MUMBAI) and holding that the assessee is entitled to the credit of service tax paid on outdoor catering service. Definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In the facts of the present case, use of the outdoor catering services is integrally connected with the business of manufacturing cement and therefore, credit of service tax paid on outdoor catering services would be allowable. - The issue raised in respect of rent-a-cab services has been considered by the Karnataka High Court in the case of CCe V. Stanzen Toyetetsu India (P) Ltd. reported in [2011 (4) TMI 201 - KARNATAKA HIGH COURT] - Cenvat Credit has been properly availed in respect of outdoor catering services and rent-a-cab services - Decided against Revenue. Issues Involved:1. Utilization of Cenvat credit facilities for outdoor catering services.2. Utilization of Cenvat credit facilities for rent-a-cab services.3. Retrospective application of Notification No.3 of 2011 dated 01.03.2011.Detailed Analysis:1. Utilization of Cenvat Credit for Outdoor Catering Services:The primary issue is whether the assessee can utilize Cenvat credit for service tax paid on outdoor catering services provided in the factory for its employees. The Department argued that such services do not fall within the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004. However, the Tribunal, following the Larger Bench decision in Commissioner of Central Excise, Mumbai V. GTC Industries Ltd. (2008 (12) STR 468), held that Cenvat credit is admissible for outdoor catering services as they relate to business.The Bombay High Court in CCE V. Ultratech Cement Ltd. (2010 -TIOL - 745 - HC- MUM - ST) supported this view, stating that the definition of 'input service' is broad and includes services used in relation to the business of manufacturing final products. The Court emphasized that services integrally connected with the business, such as statutory canteen services under the Factories Act, qualify as 'input services'. The Karnataka High Court in CCe V. Stanzen Toyetetsu India (P) Ltd. (2011 (23) STR 444 (Kar.)) and the Gujarat High Court in Commissioner of Central Excise, Ahmedabad I V. Ferromatik Milacron India Ltd. (2010) 36 VST 376 also concurred, recognizing the statutory obligation to provide canteen services as part of the manufacturing business.2. Utilization of Cenvat Credit for Rent-a-Cab Services:The second issue is whether the assessee can utilize Cenvat credit for service tax paid on rent-a-cab services provided in the factory for its employees. The Tribunal, relying on the decision in Commissioner of Central Excise, Jaipur Vs. M/s.J.K.Cement Works (2009 - TIOL- 411 CESTAT - Del.), held that such services qualify as 'input services'. The Karnataka High Court in CCe V. Stanzen Toyetetsu India (P) Ltd. (2011 (23) STR 444 (Kar.)) supported this view, stating that rent-a-cab services, which ensure timely arrival of employees, have a direct bearing on manufacturing activities and are thus integral to the business.3. Retrospective Application of Notification No.3 of 2011:The Revenue contended that Notification No.3 of 2011, which excludes outdoor catering services from 'input service', should apply retrospectively. However, the Court rejected this argument, stating that the notification clearly specifies its effective date as 1st April 2011. The amendment to Rule 2(l) explicitly states that it comes into force on 1st April 2011, and thus does not apply to the period in dispute.Conclusion:The Court, after considering the decisions of various High Courts and the Tribunal, concluded that the Cenvat credit for outdoor catering services and rent-a-cab services was rightly availed by the assessees. The appeals filed by the Revenue (C.M.A.Nos.157, 358, 516 to 518, and 2568 of 2010) were dismissed, affirming the Tribunal's order. The appeals filed by the assessees (C.M.A.Nos.2363 and 2864 of 2010) were allowed, setting aside the Tribunal's order. The Court held that the Cenvat credit facilities for both services are in favor of the assessees and against the Revenue.