Cenvat credit on outdoor catering excluded after the amended definition, but penalties were dropped in an interpretational dispute.

Outdoor catering services availed after 01.04.2011 were treated as excluded from Cenvat credit because the amended input service definition bars services used primarily for the personal use or consumption of employees, and compliance with a statutory canteen obligation did not alter that exclusion. Credit was therefore denied for the post-01.04.2011 period, with consequential interest maintained. On penalties, the dispute was regarded as interpretational and not involving wilful suppression or intention to evade, so the penalties were set aside for both the pre- and post-01.04.2011 periods.

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Issues: (i) Whether outdoor catering services availed after 01.04.2011 were eligible for Cenvat credit when used in compliance with statutory canteen requirements; (ii) Whether the penalties imposed on the disallowance of credit were sustainable.

Issue (i): Whether outdoor catering services availed after 01.04.2011 were eligible for Cenvat credit when used in compliance with statutory canteen requirements.

Analysis: The post-01.04.2011 definition of input service excludes services such as outdoor catering when they are used primarily for the personal use or consumption of employees. The exclusion was applied on the basis that outdoor catering, even when provided under statutory obligations relating to factory canteen facilities, remained within the excluded category for the relevant period. The conclusion followed the Larger Bench view that the specific exclusion governed the issue and that compliance with the statutory canteen obligation did not make the service eligible for credit.

Conclusion: Credit on outdoor catering services for the period after 01.04.2011 was held to be ineligible, and the demand with interest for that period was upheld.

Issue (ii): Whether the penalties imposed on the disallowance of credit were sustainable.

Analysis: The dispute turned on interpretation of the amended input service definition and the entitlement to credit on a contested service. In view of the interpretational nature of the controversy and the absence of wilful suppression or intention to evade, penalty was found to be unwarranted for both the pre- and post-01.04.2011 periods.

Conclusion: The penalties were set aside.

Final Conclusion: The appeals succeeded only to the extent of penalty relief, while the denial of credit and consequential interest for the post-01.04.2011 period was maintained.

Ratio Decidendi: Where a service falls within the express exclusion from the definition of input service as being used primarily for the personal use or consumption of employees, credit is not available even if the service is availed in compliance with a statutory canteen obligation; penalties may nevertheless be set aside where the dispute is purely interpretational.

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