Credit admissibility on transportation of staff to factory and employee’s children to school.

PJ/Case law/2013-14/1905

Case:- HINDUSTAN ZINC LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAINPUR

Citation:-2013(31) S.T.R. 575 (Tri.-Del.)

Brief Facts:-In this case the Commissioner, Central Excise, Jaipur-I vide order-in-original dated 18-08-2010 confirmed Cenvat credit demand of Rs. 18,01,161/- against the appellant along with interest on it at the applicable rate under Rule 14 of the Cenvat Credit Rules, 2004 readwith Section 11AB of the Central Excise Act, 1944 and besides this, imposed penalty of Rs. 2,000/- under Rule 15(3) of Cenvat credit Rules, 2004. The appellant against this order of the Commissioner filed this appeal challenging the denial of Cenvat credit amounting to Rs. 8,13,065/-. As mentioned in Para 3 of the show cause notice dated 3-3-2010, the balance amount of Rs. 9,88,096/- demanded against from them and which was also confirmed, has not been disputed and this amount had been paid by reversing the Cenvat credit even before the issue of the show cause notice.

Appellant Contentions:-The appellant pleaded that out of the disputed Cenvat credit demand of Rs. 8,13,065/- an amount of Rs. 7,62,464/- pertains to the availment for transportation for the staff from the colony to the factory and back, the credit of Rs. 45,600/- pertains to the service of transportation of the employees children from the residential colonies to the school and the credit of Rs. 49,040/- pertains to hiring of ambulance which is required to be kept as per the provisions of thee Factories Act, that Tribunal in a series of judgment- Stanzen Toyotetsu India Pvt. Ltd. v. CCE, Bangalore-III reported in 2009 (14) S.T.R. 316 (Tri.-Bang.), CC&CE, Raipur v. HEG Ltd. reported in 2010 (18) S.T.R. 446 (Tri.-Del.) and CCE, Visakhapatnam Hindustan Zinc Ltd. fled in 2009 (16) S.T.R. 704 (Tri.-Bang.), has held that the service availed for transportation of the employees from the residence to the factory and back is an input service eligible for Cenvat credit, that the ambulance for treatment of the employees in the case of accident is required to be kept as the provisions of Factories Act and hence has to be treated as an input service. Similarly the Service Tax paid on the transportation of the children from residential colony to their school or tuition is admissible input service as their factory is located away from the city and it is the responsibility of the appellant to make all arrangements for their employees. He also prays for setting aside penalty as the entire credit was availed ort the statutory documents which were filed along with returns and as such, there could be no mala rule on their part.

Respondent Contentions:-The learned Chief Departmental Representative, opposed the appellant's plea for allowing the appeal and reiterated the reasons adopted by the lower authorities for denial of credit.

Reasoning of Judgment:-The main point of dispute is as to whether the service availed for transportation of the staff from the residence to the factory and back can be treated as covered by the definition of 'input service', as given in Rule 2(I) of Cenvat Credit Rules, 2004. The Cenvat credit denied in respect of the service is Rs. 7,62,464/-. On this issue, it is found that the Tribunal in the case of Stanzen Toyotetsu India Put. Ltd. v. CCE, Bangalore-III (supra), CCECE, Raipur v. HEG Ltd. (supra) and CCE, Visakhapatnam v. Hindustan Zinc Ltd. (supra) has held that the service for transportation of the employees from the residence to the factory and back is an input service eligible for Cenvat credit. As regards the ambulance service, it is found that the appellant are required to hire the ambulance as per the provisions of the Factories Act and hence, this service is an activity related to manufacturing business and hence covered by the definition of 'input service'.
As regards the Cenvat credit of Service tax paid on the transportation of employees children from the residence to the school, the appellant have strongly contended that the said activity is covered by the expression 'in connection with business activities'. Their factory is located outside the city and the residential colony is located about 4 Km from the factory. Normal public transport system is not generally available. As such, it is the appellant who has to make arrangement for transporting the children from the colony to their school. The said activity is being provided by the appellant as per the understanding with their employees and as staff welfare activity which is necessary in smooth running of the business of the company. They have further contended that as per the definition of input services, activities relating to business is one of the criteria for allowing the credit. The providing of transportation for the children is connected with their business activity and has a direct nexus with the same inasmuch as it is in the welfare of the employees of the company and commitment towards the business target of the company.
It was also found that transportation of the employees of the companies has been held to be admissible Modvatable services by the Tribunal in the case of Stanzen Toyotetsu India Pvt. Ltd. and said decision stand upheld by the Hon’ble Karnataka High Court decision as reported in 2011 (23) S.T.R. 444 (Kar.). On going through the said judgment of Hon’ble High Court, it was found that it stand observed by them that definition of input service is wide enough and takes into its ambit the service connected for furtherance of business. Test is whether service utilized is for manufacture of final product directly or indirectly or used in relation to activities relating to business. If any of these two tests are satisfied, service is well within the definition of input service and the manufacturer would be entitled to avail the credit. As such, by referring to CAS-4 standards relating to cost of the final product, it stand held by the Hon’ble High Court that transportation of the employees service is an admissible modvatable service.
By referring to Para 4.1 of the CAS-4 standards and Para 5.2 of the same, it is seen cost of production consists do, inter alia, Direct Wages and Salaries, which include other allowances such as children’s education allowance, conveyance allowance which are payable to employees in the normal course of business etc. As such children education allowance is part of the final cost of the product manufactured by the appellant and the conveyance of children from the residential colony to the school is the responsibility of the appellant, especially when no normal/ general mode of transportation is available on account of colony being away from the city. The appellant have also taken a stand that such transportation charges are included by them in the cost of their final product on which excise duty has been paid. As per CAS-4 standards, such education allowance is also required to be made a part of the cost of production. As such, Tribunal is of the view that as the factory is located at a remote place, providing a residential colony for the staff is essential and providing of transportation for school children is more essential. The tribunal in the case of Manikgarh Cement v. CCE, Nagpur [2008(9) S.T.R.554 (Tri.-Mumbai)] has held even services used for maintenance and repair of the colony are cenvatable input services. If that be so, transportation provided for school children would also get covered in the definition of “input services”.
In view of the foregoing, I set aside the impugned order and allow the appeal with consequential relief to the appeal.

Decision:-Appeal allowed.

Comment:-The crux of this case is that cenvat credit was held to be admissible when service availed can be said to be covered by the expression “in connection with business activities”. It was held that as the cost of providing the transportation of employees and their children formed part of the final cost of the product, and since the transportation facility was necessarily to be provided as the factory was located in remote location, the service availed can be considered as in relation of business activities and credit is admissible for the same.

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PJ/Case law/2013-14/1905

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