Input service credit for factory canteen catering is admissible where canteen maintenance is statutorily required.

Outdoor catering services used in a factory canteen were treated as input service under Rule 2(l) of the Cenvat Credit Rules, 2004 because the canteen was maintained to satisfy the statutory obligation under Section 46 of the Factories Act, 1948. The service was regarded as integrally connected with manufacturing activity and as part of the production cost, bringing it within the inclusive scope of services used in relation to business. Employee recoveries were to be excluded from the credit computation. On that basis, credit on service tax paid for the canteen catering service was held admissible.

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Issues: Whether service tax paid on outdoor catering services used in the factory canteen qualifies as input service for Cenvat credit under Rule 2(l) of the Cenvat Credit Rules, 2004, when the canteen is maintained pursuant to the statutory obligation under Section 46 of the Factories Act, 1948.

Analysis: Rule 2(l) defines input service expansively to include services used directly or indirectly in or in relation to manufacture and also services used in relation to activities relating to business. Outdoor catering services used in the factory canteen were treated as integrally connected with the business, and the cost of such service formed part of the production cost. The canteen obligation under Section 46 of the Factories Act, 1948 made the service a condition attached to the manufacturing activity rather than a mere welfare measure. The authorities relied upon by the Tribunal supported the view that such services fall within the inclusive ambit of input service. Amounts recovered from employees were directed to be excluded.

Conclusion: Credit on service tax paid for outdoor catering services was held admissible, and the assessee's appeals were allowed while the Revenue's appeals were dismissed.

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