2010 (10) TMI 13 - HC - Central Excise

Rule 2(l) treats input service broadly; outdoor catering for cement manufacture qualifies, but employee food cost credit disallowed

CCE, Nagpur Versus Ultratech Cement Ltd.,

HC held the definition of 'input service' under Rule 2(l) is wide, covering services directly or indirectly used in manufacture and those used in the ... Entitlement to CENVAT Credit - outdoor catering services - scope of 'Input Service' under Rule 2(l) - expression 'activities relating to business' - Held that:- The substantive part of the definition 'input service' covers services used directly or indirectly in or in relation to the manufacture of final products, whereas the inclusive part of the definition of 'input service' covers various services used in relation to the business of manufacturing the final products. In other words, the definition of 'input service' is very wide and covers not only services, which are directly or indirectly used in or in relation to the manufacture of final products but also includes various services used in relation to the business of manufacture of final products, be it prior to the manufacture of final products or after the manufacture of final products. To put it differently, the definition of input service is not restricted to services used in or in relation to manufacture of final products, but extends to all services used in relation to the business of manufacturing the final product. Services having nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product would qualify to be input service under Rule 2(l) of 2004 Rules. - all services used in relation to the business of manufacturing the final product are covered under the definition of `input service' and in the present case, the outdoor catering services being integrally connected with the business of the manufacture of cement, credit of service tax paid out on catering services has been rightly allowed by the Tribunal. - However, once the service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. - proportionate credit to the extent embedded in the cost of food recovered from the employee/worker not allowed Issues Involved:1. Entitlement to CENVAT Credit on outdoor catering services.2. Definition and scope of 'Input Service' under Rule 2(l) of Cenvat Credit Rules, 2004.3. Applicability of the Maruti Suzuki Ltd. case.4. Relevance of the inclusive part of the definition of 'Input Service'.5. Legislative intent and interpretation of 'activities relating to business'.Detailed Analysis:1. Entitlement to CENVAT Credit on Outdoor Catering Services:The core issue was whether the respondent could avail CENVAT Credit on outdoor catering services provided in the factory for employees. The Revenue argued that outdoor catering services do not fall under the definition of 'Input Service' as per Rule 2(l) of the Cenvat Credit Rules, 2004. However, the Tribunal, following the larger Bench decision in the case of GTC Industries Ltd., held that the assessee was entitled to such credit. The High Court upheld this view, stating that the services used in relation to the business of manufacturing the final product, such as mandatory canteen services under the Factories Act, 1948, qualify as 'Input Services'.2. Definition and Scope of 'Input Service' under Rule 2(l) of Cenvat Credit Rules, 2004:The definition of 'Input Service' includes services directly or indirectly used in the manufacture of final products and services used in relation to the business of manufacturing the final products. The High Court emphasized that the definition is broad and covers various services used in relation to the business of manufacturing final products, whether before, during, or after the manufacturing process. The court concluded that outdoor catering services, being integrally connected with the business of manufacturing cement, fall within this definition.3. Applicability of the Maruti Suzuki Ltd. Case:The Revenue cited the Maruti Suzuki Ltd. case to argue that credit is only available if the service is used in or in relation to the manufacture of final products. The High Court clarified that while the Maruti Suzuki Ltd. case pertains to the definition of 'input' under Rule 2(k), the definition of 'Input Service' under Rule 2(l) is broader. It includes services used in relation to the business of manufacturing the final product, thus extending beyond the scope of the Maruti Suzuki Ltd. case.4. Relevance of the Inclusive Part of the Definition of 'Input Service':The inclusive part of the definition of 'Input Service' covers a wide range of services such as accounting, auditing, financing, recruitment, etc. The High Court held that this inclusive part is illustrative and not exhaustive, meaning it encompasses all services used in relation to the business of manufacturing the final product. The court rejected the Revenue's argument that the expression 'such as' is restrictive.5. Legislative Intent and Interpretation of 'Activities Relating to Business':The High Court examined the legislative intent behind the CENVAT Credit Rules, 2004, which aim to integrate tax on goods and services. The court noted that the term 'activities relating to business' should be interpreted broadly to include all activities integrally connected with the business of manufacturing the final product. This interpretation aligns with the object of the CENVAT Scheme, which is to allow credit of taxes paid on services used in relation to the business of manufacturing.Conclusion:The High Court affirmed the Tribunal's decision, holding that the assessee is entitled to CENVAT Credit on outdoor catering services as they are integrally connected with the business of manufacturing cement. The court directed the Excise Authorities to verify the reversed CENVAT credit proportionate to the cost of food recovered from employees. The appeal was disposed of with no order as to costs.