Credit admissibility for Rent-a-Cab service, cleaning and Repair/Maintenance service of Guest House, Gymnasium etc.

PJ/CASE LAW/2016-17/3133

Case:- MUKAND LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR

Citation:- 2016 (42) S.T.R. 88 (Tri. – Mumbai)

Brief Facts:- The appellant M/s. Mukand Ltd. is registered with Central Excise Department and is engaged in manufacturing of excisable goods falling under Chapters 72, 73 & 84 of Central Excise Tariff Act, 1985. A show cause notice dated 13-4-2012 for the extended period April, 2007 to January, 2012 was issued. As per the show cause notice it is alleged that the appellant have wrongly availed Cenvat credit of Service Tax amounting to Rs. 1,80,20,547/- on the input services namely, Rent-a-Cab service, Outdoor Catering service, services by Air Travel Agency, services by CHA in respect of exports, cleaning and Repair/Maintenance service of Guest House, Gymnasium and sports club/sports ground, etc. The assessee was further required to show cause as to why the proposed Cenvat credit not be disallowed and recovered from it, and further as to why not interest be recovered and further why not penalty be imposed under Section 11AC(1)(a) of the Central Excise Act read with Rule 15(2) of the Cenvat Credit Rules. The appellant contested the show cause notice by filing written submissions. Vide Order-in-Original dated 16-7-2013, the Commissioner adjudicated the show cause notice and disallowed part of the proposed disallowance of Cenvat credit for an amount of Rs. 23,03,110/- along with interest and also imposed equal amount of penalty under Rule 15(2) of Cenvat Credit Rules read with Section 11AC. The details of disallowance are indicated in the table below :-

Sr. No.	Name of the service	Amount claimed (in Rs.)	Amount of credit disallowed (in Rs.)
1.	Canteen expenses	55,62,511/-	16,33,733/-
2.	Cleaning expenses	33,182/-	33,182/-
3.	Gardening expenses	82,501/-	82,501/-
4.	Repair & Maintenance of residential colony	3,63,399/-	3,63,399/-
5.	Sport Club/Ground	1570/-	1570/-
6.	Vehicle Hire charges	58,63,789/-	1,88,720/-
	Total		23,03,110/-

Appellant’s Contention:- As regards ‘canteen expenses’, the appellant states that they did not avail any outdoor catering services and they have not taken credit of any Service Tax paid on the same. Within the factory premises, they are maintaining their canteen, which is also a statutory requirement under Section 46 of the Factories Act. The appellant has about 1000 employees working in their factory. Appellant is availing the service of an agency to supply them the required manpower/labour to enable them to run the canteen. They have taken credit of the Service Tax paid on the services utilized by them without deployment of manpower to run their canteen. Thus, the input service is not in the nature of canteen service or outdoor canteen service and further the activity of running and maintaining the canteen is relating to the manufacturing business and accordingly, are entitled to the input service under Rule 2(l) of Cenvat Credit Rules. The learned Commissioner has also accepted that the maintenance of canteen is essential and is an essential input for the manufacturing activity but at the same time disallowed proportionate sum pertaining to the amount collected from the employees. The appellant vehemently argues that there being no outdoor catering service availed, no proportionate disallowance was called for. Further, the appellant have not recovered any amount of Service Tax incurred on the deployment of manpower for running the canteen and accordingly is relying on the ruling of the Hon’ble Bombay High Court in the case of Ultratech Cement Ltd. and prays for setting aside the disallowance in respect of canteen expenses.

As regards the repair and maintenance of residential colony amounting to Rs. 3,63,309/-, the same is not pressed and the ground stands withdrawn. Also the demand towards maintenance of sports club/ground Rs. 1,570/- is not pressed and ground stands withdrawn.
As regards the proportionate disallowance of vehicle hiring charges, the appellant vehemently urges that there was no such proposal in the show cause notice to disallow the proportionate amount, being Service Tax credit pertaining to the amount collected from the employees. As such, the same is beyond the scope of show cause notice and accordingly, fit to be set aside.
As regards gardening expenses, it is pointed out that the same are essential for running the factory in support of which the appellant have produced the “Consent to operate” letter issued by the ‘Maharashtra Pollution Control Board’ dated 26-3-2007, wherein the Pollution Control Board considering the parameters that the Trade Effluent and discharge sewage, etc., have given the consent subject to the condition that green belt afforestation is to be done up to 33% on available open space land as per the said consent letter. Thus, maintenance/afforestation and green belt in and around factory premises is an essential part, is the Mandatory Activity under the law of the land, so as to comply with the provisions of Water (Prevention and Control of Pollution) Act, 1974 and Air (Prevention and Control of Pollution) Act, 1981 read with relevant Rules. Accordingly, the disallowance is uncalled for and pleads the same to be set aside.
As regards cleaning expenses of Rs. 33,182/-, it is stated that the residential colony is situated within the factory premises, forming part of the factory area, as per approved map by the Central Excise authority.Further, the colony is an ‘industrial township’ and the appellant is responsible to provide all types of municipal services in the colony. As such, the disallowance is bad, and fit to be set aside.

Respondent’s Contention:-The respondent reiterated the findings of the lower authorities.

Reasoning Of Judgment: Having considered the rival contentions and perusing the appeal filed and the documents produced by the appellant, as regards the ‘canteen expenses’, which is only the labour component for manpower engaged for running the canteen, Tribunal hold that no proportionate disallowance is called for as there is no element of outdoor catering nor there is any element for recovery of Service Tax from the employees.
As regards the ‘gardening expenses’, the credit on the same is fully allowable as the same is required for maintaining the good atmosphere in the manufacturing area and also a condition precedent as laid down by the State Pollution Control Board, without which the appellant cannot resort to manufacturing Activity.
As regards the ‘cleaning expenses’, the same have been incurred in the maintenance of residential colony, which forms part of the factory premises, Tribunal take notice of the fact that the colony is part of the factory premises as per the approved map by the Central Excise authorities. Further, there is no municipality in the area where the factory and colony is located for providing the services of township maintenance. The colony is a small industrial township, created by the appellant for running its factory and as an industrial township; the same is required to be maintained by the Industry itself (Article 243 of the Constitution of India). As such the disallowance of cleaning expenses is set aside. As regards the proportionate disallowance for the vehicle hiring charges, Tribunal found that there is no allegation in the show cause notice to disallow any proportionate amount towards the amount recovered in part from the employees and as such the said disallowance is held to be unsustainable and the same is set aside.

In view of the above findings, the appeal is allowed.

Decision:-Appeal allowed.

Comment:- The crux of the case is that the benefit of cenvat credit is admissible as far as the services are related to manufacturing activities or are statutorily required to be availed in accordance with the provisions of any law for the time being in force.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3133

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