Admissibility of Cenvat credit on services related to Business activity

PJ/Case Laws/2010-11/1049

Case: L'oreal India Pvt Ltd v/s Commissioner of Central Excise, Pune-I

Citation: 2011-TIOL-95-CESTAT-MUM

Issue:- Cenvat credit will be admissible on services utilised by the manufacturer in relation to their business activity. Credit admissible on Outdoor Catering Services availed in guest house, Garden maintenance basis, Housekeeping at Guest House, Housekeeping at factory and jungle cutting service.

Penalty cannot be imposed as the issue involved interpretation of statutes.

Brief Facts:- Appellants are denied input service credit on the Outdoor Catering Services availed in guest house, Garden maintenance basis, Housekeeping at Guest House, Housekeeping at factory, Picnic and jungle cutting service.

The Lower Authorities denied input service credit on these services by holding that these services have no nexus with the manufacturing activity of the appellant hence they are not entitled to take input service credit as per Rule 2 (1) of the Cenvat Credit Rules, 2004.

Hence, appellant is before the Tribunal.

Appellant’s Contentions:- Appellant submitted that services of outdoor catering service, gardening, and housekeeping of guest house and factory premises are very much related to the business activity of the appellant, who is engaged in the manufacturing activity of excisable goods.

With regard to jungle cutting services, appellant submitted that to keep their finished product bacteria free, they have to maintain atmosphere around their factory completely free of bacteria etc. and in pursuance to that they take the services of jungle cutting to maintain their finished products bacteria free. Hence, the impugned service qualifies for to take credit.

With regard to picnic service, appellant submitted that picnic service is for the employees of the factory of the appellants, which gives the boosting to do the employees to do work in their factory efficiently. Hence, the input service credit is to be allowed.

Respondent’s Contention:- Revenue submitted that the catering service has been availed by the appellants in their guest house and it is the duty of the appellant to prove the nexus of the services availed by them with their manufacturing activity, which they failed in all the above mentioned services. Hence, the Lower Authority has rightly denied input service credit to the appellants.

Reasoning of the Judgment:- The Tribunal found that in the recent decision of the Bombay High Court in the case of Ultratech Cement Ltd [2010-TIOL-745-HC-MUM-ST] wherein it was held that the assessees entitled to avail input service credit of the services availed by the assessees in their business activity of manufacturing i.e. if the assessees (manufacturer) is availing any service in the course of their business activity then the assessee is entitled for input service credit.

It was held that in present case no doubt the guest house has been maintained by the appellant for their business activity and not for any welfare of the society. Hence, the appellants are entitled for input service credit on outdoor catering service/house keeping service except for the portion of their service for which they have recovered some amount from the persons staying in guest house.

With regard to garden maintenance service and house keeping service of the factory, it was held that as these were availed by the appellants in the course of their business, they are entitled for input service credit.

With regard to the picnic services, it was held that this service does not have any nexus with the business activity of the appellants. Hence, the input service credit on the picnic service was denied.

Further on jungle cutting service which was required by the appellant to keep the environment without bacteria in the surroundings of their factory which amounts to availment of the said service for their business of manufacturing. Hence, the appellants are entitled for availment of input service credit on these services also.

As the issue involved of interpretation of statute no penalties are warranted in this case. It was mentioned that the portion of services, on which the credit has been denied, the appellant shall pay interest on them at applicable rates.

Decision:- Appeals disposed of.

Comments:- This is also important decision that the credit on input services are being allowed following the High Court decisions in case ofCoca cola and Ultratech Cement. But the approach at ground level by audit party as well as department officer is to issue show cause notice for each case. Although the department has not gone further in above cases then also the unwarranted show cause notices are being issued. This should be stopped and litigation should be avoided.

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PJ/Case Laws/2010-11/1049

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