2016 (11) TMI 989 - AT - Central Excise

Tribunal Upheld Revenue's Disallowance of Service Tax Credit: Lack of Disclosure Leads to Penalties

The Tribunal upheld the Revenue's decision to disallow credit for service tax paid on 'outdoor catering services' and 'rent-a-cab service' due to lack of ... Allowability of service tax credit to manufacturer - proportionate reversal where service cost is borne by the ultimate consumer - Cenvat/credit on outdoor catering and rent a cab services - disclosure of recovery from employees and its effect on credit claimAllowability of service tax credit to manufacturer - proportionate reversal where service cost is borne by the ultimate consumer - Credit is not allowable to the manufacturer in respect of the portion of service tax embedded in costs recovered from employees. - HELD THAT: - The Tribunal examined the legal position that where the ultimate consumer (here, the employee) bears part of the cost of a service, the manufacturer cannot claim Cenvat/credit for that proportion. The Tribunal relied on the reasoning recorded by the High Court of Bombay which, while referring to the Larger Bench in GTC Industries Ltd., upheld the principle that proportionate credit embedded in amounts recovered from the worker must be reversed. The appellant's contention that the High Court's determination rested on a counsel's concession was rejected; the High Court had given its own findings on the ratio. Applying that principle to the facts, the portion of service tax attributable to amounts recovered from employees is not admissible as credit to the appellant. [Paras 4, 5]The claim of credit in respect of the portion of outdoor catering and rent a cab services whose cost was recovered from employees is not allowable and must be reversed.Cenvat/credit on outdoor catering and rent a cab services - The appellants' claim for service tax credit on outdoor catering and rent a cab services was examined and disallowed to the extent the cost was borne by employees. - HELD THAT: - The appellant had availed credit on service tax paid for outdoor catering and rent a cab services, asserting these were used for factory employees (and in the case of catering, to meet Factory Act requirements). The Tribunal considered the factual position that part of the cost was recovered from employees; in view of the legal principle that credit cannot be taken for the portion borne by the ultimate consumer, the impugned disallowance by the Revenue stands justified for that proportion. [Paras 1, 5]Credit on outdoor catering and rent a cab services is disallowed to the extent the appellant recovered the cost from its employees.Disclosure of recovery from employees and its effect on credit claim - Failure to disclose recovery of service costs from employees to the Revenue affects the admissibility of the claimed credit and justifies dismissal of the appeal. - HELD THAT: - The Tribunal found that the appellants had not disclosed at any stage to the Revenue that they were recovering part of the cost from employees. Given the established legal position requiring reversal of proportionate credit where the employee bears the cost, nondisclosure of such recovery undermines the appellant's claim. The Tribunal therefore sustained the Revenue's disallowance in consequence of the undisclosed recoveries and applicable legal principle. [Paras 5]Because the appellants did not disclose recoveries from employees, their credit claim is unsustainable and the appeal is dismissed.Final Conclusion: The Tribunal dismissed the appeal: the High Court's ruling was not founded on a counsel's concession; the appellant cannot claim service tax credit for the portion of outdoor catering and rent a cab services whose cost was recovered from employees, and nondisclosure of such recoveries to the Revenue warranted upholding the disallowance. Issues:1. Availment of credit for service tax paid on 'outdoor catering services' and 'rent-a-cab service.'2. Disallowance of credit based on a previous court decision.3. Imposition of penalty for interpretational issues related to Cenvat credit.Analysis:1. The appellant claimed credit for service tax paid on 'outdoor catering services' and 'rent-a-cab service' used for providing food and beverages to factory employees as per the Factories Act, 1948. While a portion of the cost was recovered from the employees, the Revenue disallowed the credit citing a previous court decision.2. The appellant argued that the Revenue's disallowance was based on a High Court decision involving Ultratech Cement Ltd., where a concession was given by the manufacturer's counsel. However, upon examination, it was found that the High Court's decision was not solely based on a concession but rather on the interpretation of CESTAT's ruling in the GTC Industries Ltd. case. The appellant failed to disclose the cost recovery from employees to the Revenue, leading to the dismissal of the appeal.3. The appellant contended that no penalty should be imposed as the issue was interpretational regarding the admissibility of Cenvat credit. The Tribunal noted that the High Court's decision was not influenced by a concession but by the legal interpretation of the law. As the appellant did not inform the Revenue about cost recovery from employees, the penalty was upheld, and the appeal was dismissed.In conclusion, the Tribunal upheld the Revenue's decision to disallow the credit based on legal interpretations and lack of disclosure by the appellant, leading to the dismissal of the appeal and the imposition of penalties.