Cenvat credit on outdoor catering was denied after the rule change, while interest and penalty failed in a purely interpretational dispute.

Cenvat credit on outdoor catering service was held inadmissible for the period after 01.04.2011 because the amended Rule 2(l) excluded that service from the definition of input service, and the statutory canteen obligation under the Factories Act did not override the exclusion. Interest on reversal of the disputed credit was not sustainable where sufficient unutilised Cenvat credit balance was available and the credit had not caused loss to the exchequer. Penalty under Rule 15(1) was also found unjustified because the dispute was purely interpretational and earlier proceedings had treated the issue on that basis. The credit demand was maintained, but interest and penalty did not survive.

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Issues: (i) Whether Cenvat credit on outdoor catering service was admissible after 01.04.2011; (ii) Whether interest was payable on reversal of the ineligible credit when sufficient unutilised credit balance was available; (iii) Whether penalty under Rule 15(1) was sustainable in a dispute involving interpretation of the credit rule.

Issue (i): Whether Cenvat credit on outdoor catering service was admissible after 01.04.2011

Analysis: The definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 stood amended with effect from 01.04.2011. The larger bench decision on the subject had already settled that outdoor catering service, after the amendment, fell within the exclusion clause and was not eligible for Cenvat credit. The statutory obligation to maintain a canteen under Section 46 of the Factories Act, 1948 did not alter the applicability of the exclusion once the amended definition governed the field.

Conclusion: The credit on outdoor catering service for the post-amendment period was not admissible and the demand on that count was rightly sustained.

Issue (ii): Whether interest was payable on reversal of the ineligible credit when sufficient unutilised credit balance was available

Analysis: The disputed credit had been reversed, and the appellant relied on the existence of a substantial unutilised Cenvat credit balance at the relevant time. On that factual basis, and following the governing principle that interest is not attracted where the assessee had enough credit balance and no actual utilisation of the disputed credit could be said to have caused loss to the exchequer, the interest demand could not be sustained.

Conclusion: The demand of interest was set aside.

Issue (iii): Whether penalty under Rule 15(1) was sustainable in a dispute involving interpretation of the credit rule

Analysis: The dispute turned on the interpretation of Rule 2(l) of the Cenvat Credit Rules, 2004. The record showed that in the appellant's own case penalty had already been set aside for an earlier period on the ground that the issue was interpretational, and in later adjudications penalty had also not been imposed. In these circumstances, the imposition of penalty was not justified.

Conclusion: The penalty under Rule 15(1) was unsustainable and was set aside.

Final Conclusion: The service tax demand on outdoor catering service was maintained, but the ancillary liabilities towards interest and penalty did not survive, resulting in partial relief to the assessee.

Ratio Decidendi: Where ineligible Cenvat credit is reversed but the assessee has sufficient unutilised credit balance and the dispute is purely interpretational, interest and penalty are not warranted, though the credit itself may still be denied under the amended input service definition.

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