Canteen service/facility - Whether input service under CCR, 2004

PJ/Case Laws/2010-11/1040

Case: Commissioner of Central Excise, Ahmedabad - I v/s Ferromatik Milacron India limited

Citation: 2011-TIOL-18-HC-AHM-ST

Issue:- Whether the canteen service/ facility; provided in the factory of the assessee was an input service, in or in relation to manufacture, directly or indirectly of the final products, within the meaning of and comprehension of Rule 2 (i) of the CENVAT Credit Rules, 2004?

Whether the CENVAT credit of the Service Tax, so paid for receiving the outdoor caterer’s services by them for providing canteen services to their employees, was eligible for availment and utilization in terms of Rule 3 of the CENVAT Credit Rules, 2004?

Brief Facts:- Respondent-assessee is a manufacturer of Injection Moulding Machines and parts thereof. Canteen services were being provided by the respondent to its employees, in view of statutory requirement under Section 46 of the Factories Act. During audit, it was noticed that during the period 1st March, 2006 to 30th September, 2006, respondent had availed Cenvat credit on Service Tax in respect of canteen services. Department alleged that respondent was not entitled to the credit on the ground that canteen services cannot be treated as input service as defined under the CENVAT Credit Rules, 2004. Accordingly, Show Cause Notice was issued. The Adjudicating Authority confirmed the demand of recovery of service tax and penalty was imposed alongwith interest.

Appeal before Commissioner (A) was dismissed. Respondent has filed appeal before the Tribunal. The Tribunal allowed the appeal. Hence, Revenue has filed this appeal before the Tribunal.

Appellant’s Contentions:- Revenue submitted that the main definition of input services extended CENVAT credit of service tax paid on services which were used in or in relation to the manufacture of finished excisable goods. That the inclusive part of the definition which covers additional business activities cannot be stretched beyond what is prescribed in the main definition. Accordingly, canteen services even if they are assumed to be activities relating to the main business of manufacture, the same would not be covered under the inclusive part of the definition, because extension of such facilities would not have any direct or indirect nexus to the manufacture of goods.

It was accordingly submitted that the definition of the term input services as appearing in Rule 2(l) of the Rules would not bring the service in question within the scope of input service so as to be eligible for credit under Rule 3 of the Rules.

Reasoning of the Judgment:- The High Court found that for the purpose of carrying out its manufacturing activities, it was mandatory for the respondent to provide canteen facilities to its workers. The High Court perused the definition of input services as given under CCR, 2004.

Further, the High Court held that as per the provisions of Section 46 of the Factories Act, it is mandatory for the employer to provide canteen services to the staff. Thus, provision of canteen service is a statutory requirement. Provisions of canteen service are a statutory requirement. Provisions of canteen services being indispensible, it is incumbent on a manufacture of goods, to provide the same if he desires to run his factory. In view of the definition of Input service which means any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products, the input service does not have to used directly in the manufacture of final products, it may be a service which is only indirectly used in relation to the manufacture of final products. In the circumstances, canteen services which are indispensible in relation to manufacture of the final products would certainly fall within the ambit of input service as defined under the rules.

It was held that moreover, Rule 3 of the Rules insofar as the same is relevant for the present purpose provides that the manufacture shall be allowed to take credit of the service tax leviable under Section 66 of the Finance Act; paid on any input service received by the manufacturer of final product on or after the 10th day of September, 2004. A plain reading of the said rule makes it clear that the said provision does not qualify the nature of input service availed by the manufacturer.

The High Court held that the Tribunal was justified in holding that the service tax paid on outdoor catering services by the canteen located in the respondent’s manufacturing premises has to be considered as an input service relating to business and that Cenvat credit is admissible in respect of the same. The view taken by the Tribunal being in consonance with the provisions of the Rules does not suffer from any legal infirmity so as to warrant interference.

Judgment:- Appeal dismissed.

Comment:- It is important decision which says that if the services are provided due to legal requirement then the cenvat credit is available on the same. This analogy will have far reaching effect in days to come.

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PJ/Case Laws/2010-11/1040

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