CENVAT credit on employee transport by rent-a-cab is admissible when business use and tax burden remain with the appellant.
CENVAT credit was recognised as admissible on rent-a-cab services used to transport employees between their residences and the factory, because employee transportation for business use had been treated as an input service and the tax burden was borne by the appellant. Disallowance was also rejected where only a token amount was recovered from employees, since no service tax element was passed on to them and the precedent on recovery from the ultimate consumer did not apply. The article further notes that the disallowance could not be sustained on a ground not raised in the show cause notice, making the impugned order unsustainable.
Issues: (i) Whether CENVAT credit was admissible on rent-a-cab service used for transporting employees between their residences and the factory; (ii) whether disallowance of credit could be sustained on the ground that a token amount was recovered from employees towards transport.
Issue (i): Whether CENVAT credit was admissible on rent-a-cab service used for transporting employees between their residences and the factory.
Analysis: The service was treated as an input service for CENVAT purposes, as transportation of employees to and from the factory had already been recognised in prior decisions as eligible for credit. The reasoning also noted that the service tax was borne by the appellant and that the facts were distinguishable from cases where the service tax element was recovered from the ultimate consumer of the service.
Conclusion: Yes. Credit on rent-a-cab service for employee transportation was admissible.
Issue (ii): Whether disallowance of credit could be sustained on the ground that a token amount was recovered from employees towards transport.
Analysis: The ground on which credit was disallowed in appeal was not the ground raised in the show cause notice, and therefore the disallowance travelled beyond the notice. On facts, the amount recovered from employees was only a token contribution and no part of the service tax was recovered from them, so the cited precedent on recovery from the ultimate consumer did not apply.
Conclusion: No. The disallowance could not be sustained on that ground.
Final Conclusion: The impugned order was unsustainable and the appeals succeeded with consequential relief.
Ratio Decidendi: CENVAT credit on employee transport by rent-a-cab is admissible where the service is used for the business, the tax burden is borne by the appellant, and a disallowance based on a new ground not raised in the show cause notice cannot be upheld.
TaxTMI 
AI Drafter ✕
TaxTMI 
