Credit on Canteen Services, rent-a-cab service, Group Insurance service

PJ/Case Laws/2011-12/1367

Case: COMMR OF C. EX, BANGALORE-III v/s STANZEN TOYOTETSU INDIA (P) LTD.

Citation: 2011 (23) S.T.R. 444 (Kar.)

Issue:- Canteen services provided in factory through outdoor caterers, Rent-a-Cab service, Group Insurance service – Whether are input services within the meaning and comprehension of Rule 2(I) of Cenvat Credit Rules, 2004?

Brief Facts:- Respondents are manufacturers of parts and accessories of motor vehicles falling under Chapter 8708 99 00 of the Central Excise Tariff Act, 1985. They were also availing Cenvat credit of duty paid on inputs, capital goods and service tax paid on services used in or in relation to manufacture of their final products. On scrutiny of their records, Revenue found that the respondent had availed and utilized input service tax credit relating to canteen services. It was also noticed that respondent had availed and utilized the input service tax credit relating to Rent-a-Cab service and on the Group Health Insurance services.

A show cause notice was issued to the respondent alleging that they have wrongly availed cenvat credit in respect of outdoor catering, Rent-a-Cab Service and Group Health Insurance services.

The Adjudicating Authority confirmed the demand of service tax. An appeal before the Commissioner (Appeal) was dismissed. Respondent then filed appeal before the Tribunal.

The Tribunal taking note of the judgment in CCE v/s Cable Corporation of India [2008 (12) STR 598 (Tri-Mumbai)] as well as of the definition of input service contained in the Rules held that since Rent-a-cab service is used for bringing employees to work in the factory for manufacture of goods it is to be considered as if used indirectly in relation to the manufacture or as a part of business as any facility given to the employees will result in greater efficiency and promotion of business. The service tax on outdoor catering services is paid by the manufacturer for running the canteen, irrespective of the fact that subsidized foods is provided or not. Whether the cost of the food is borne by the worker or by the factory, the same will form part of the expenditure incurred by the manufacturer and will have a bearing on the cost of production. Therefore, employment of outdoor caterer for providing catering service has to be considered as an input service relating to the business and the Cenvat credit in respect of the same is admissible. The Group Health Insurance Policy is taken to protect the interest of the employees either during the course of their journey to the factory or while working in the factory and the cost of that insurance premium is also a factor that the manufacturer takes into consideration in fixing the price of the goods manufactured. The service tax paid on the said service, the manufacturer is entitled to Cenvat credit and therefore, impugned orders were set aside and credit was restored.

Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue contended that definition of input service as contained in Rule 2(1) did not include Outdoor Catering, Rent-a-Cab Service or Group Health Insurance and therefore the Tribunal was in error in holding that those services fall within the definition of input service and in extending the benefit to the assessee. He also contended that those services are in the nature of welfare measure to the employees and it has nothing to do with the manufacturing activity of the assessee. Therefore he contends that the order of the Tribunal is liable to be set aside and the assessee is liable to pay duty, interest and penalty, in respect of wrong availment of Cenvat credit.

Respondent’s Contention:- Respondent argued that all the aforesaid three services are provided by the assessee to its employees and it falls within the definition of input service inasmuch as those services are used by the assessee indirectly or in relation to the manufacture of final products and clearance of final products from the place of removal and it also falls within the phrase "activities relating to business" as contained in the inclusive part of the definition and therefore the Tribunal was justified in setting aside the order passed by the authorities and granting the benefit. Respondent also submits that the Tribunals throughout the country have taken the said and therefore no case for interference with the order of the Tribunal is made out.

Reasoning of Judgment:- The High Court referred to the definition of input services in Rule 2 (l) of CCR, 2004 and held that from definition it is clear that any service used by the manufacturer whether directly or indirectly in or in relation to the manufacturer of final products constitutes input service. It was held that the test is whether the service utilized by the assessee is for manufacture of final product. It may be utilized indirectly or directly. It is an inclusive definition. And services mentioned are not exhaustive but are illustrative. When service is not expressly mentioned in the definition then the question is what are the ingredients that are to be satisfied for availing such credit. If the credit is availed by the manufacturer, then the said service should have been utilised by the manufacturer directly or indirectly in or in relation to the activities relating to the business. If any one of these two tests is satisfied, then such a service falls within the definition of “input service” and the manufacturer is eligible to avail cenvat credit of the service tax paid on such service.

The High Referred to CAS-4 Standards wherein all the elements of costs which are required to be included in the costing of final product have been enumerated.

Canteen Service: Cost incurred in rendering canteen service in discharge of legal obligation, will be included in the cost of production.

Rent-a-cab service/Transportation: Providing said service for transporting employees would form part of a condition of service and the amounts spent on the conveyance of the employees is also a factor which will be taken into consideration by the employees in fixing the price of the final product. It is a basic necessity and not a welfare measure. It is an activity relating to business.

Insurance/Health Policy: Group Insurance policy is a welfare measure and is an obligation which is cast under the Statute that the employer has to obey. It would constitute an activity relating to business which is specifically included in the input service definition.

It was held that merely because these services are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and the assessee is not entitled to the benefit of CENVAT credit. In fact, Rule 3 of the Cenvat [Credit] Rules, 2004, specifically provides that the manufacturer of final products shall be allowed to take credit, the service tax leviable under Section 66 of the Finance Act and paid on any input service received by the manufacturer of a final product. Therefore under the scheme of the Cenvat Credit Rules, 2004, the service tax paid on all those services which the assessee has utilized directly or indirectly in or in relation to the final product is entitled to claim the credit. Therefore, the judgment of the Tribunal is legal and valid and is in accordance with law and does not suffer from any legal infirmity which calls for any interference. Hence, the substantial questions of law framed in these appeals are answered against the revenue and in favour of the assessee.

Decision:- Appeal dismissed.

Comments

PJ/Case Laws/2011-12/1367

Post a Comment

Query