CENVAT credit on canteen services was denied after the 1.4.2011 exclusion, while penalty failed in a bona fide dispute.

After the 1.4.2011 amendment to the input service definition, outdoor catering or canteen services used for employees in a factory were held to fall within the exclusion for services used primarily for personal use or consumption, and the Larger Bench view was applied in judicial discipline. Accordingly, CENVAT credit on such services was inadmissible and the disallowance was upheld. On penalty, the dispute was treated as interpretational and the assessee had disclosed the credit in returns, so the ingredients for penalty were not satisfied. The demand and interest were sustained, but the penalty was deleted.

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Issues: (i) Whether CENVAT credit on outdoor catering or canteen services availed for employees in a factory was admissible after 1.4.2011; (ii) Whether the penalty imposed on the assessee was sustainable.

Issue (i): Whether CENVAT credit on outdoor catering or canteen services availed for employees in a factory was admissible after 1.4.2011.

Analysis: The definition of input service after 1.4.2011 contains an exclusion for services such as outdoor catering when they are used primarily for personal use or consumption of employees. The factory was under a statutory obligation to provide canteen facilities under the Factories Act, and the assessee contended that such services were integrally connected with manufacture. However, the Tribunal followed the Larger Bench view that outdoor catering services are specifically covered by the exclusion clause and, by judicial discipline, that view had to be applied.

Conclusion: The credit on outdoor catering or canteen services was held to be inadmissible and the disallowance was upheld.

Issue (ii): Whether the penalty imposed on the assessee was sustainable.

Analysis: The dispute was interpretational in nature, and the assessee had disclosed the credit availed in its returns. In these circumstances, the ingredients for penalty were not made out.

Conclusion: The penalty was set aside.

Final Conclusion: The demand and interest were sustained, but the penalty was deleted, resulting in only partial relief to the assessee.

Ratio Decidendi: After the 1.4.2011 amendment, outdoor catering or canteen services fall within the exclusion from input service when the binding Larger Bench view applies, while penalty cannot be sustained in a bona fide interpretational dispute with full disclosure.

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