Employee housing not taxable under Rule 6(3) as per court ruling

The appeal was allowed in favor of the appellant as the Hon'ble Member found the demand raised under Rule 6(3) unsustainable. Providing residential quarters to employees free of rent did not constitute exempted service as no value flowed from employees to the appellant for the houses provided within the premises. The activities of employees contributing to the manufacturing process were duty-free, and the demand under Rule 6 was deemed inapplicable. The judgment of the Hon'ble Bombay High Court, upheld by the Supreme Court, supported this decision.

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Issues:
- Whether providing residential quarters to employees free of rent constitutes exempted service under Rule 6 of Cenvat Credit Rules, 2004.
- Whether the demand of 6%/7% on the value of exempted service is sustainable.

Analysis:

Issue 1: Providing residential quarters to employees free of rent
The appellant provided residential quarters to employees without charging any rent. The department argued that this constituted exempted service, leading to a demand of 6%/7% on the deemed rent value. The appellant contended that since no rent was collected, the activity did not fall under the exempted category. The appellant relied on various judgments to support their argument, emphasizing that no value of exempted service existed due to the absence of rent collection.

Issue 2: Sustainability of demand under Rule 6(3)
The Revenue maintained that the rent paid to employees staying outside the company's residential quarters should be considered as the gross value of renting service for quarters within the factory premises. However, the Hon'ble Member (Judicial) analyzed the situation and found that Rule 6 could only be charged on the value of exempted services. In this case, as no value flowed from employees to the appellant for the residential houses provided within the premises, the demand of 6%/7% was deemed unsustainable. The Hon'ble Member highlighted that the activities of employees ultimately contributed to the manufacturing process, such as cement production, which was duty-free. Additionally, it was noted that the demand under Rule 6 was not applicable to the removal of waste and scrap, as established by a judgment of the Hon'ble Bombay High Court, upheld by the Supreme Court.

In conclusion, the Hon'ble Member set aside the demand raised under Rule 6(3) as unsustainable, thereby allowing the appeal in favor of the appellant.

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