Credit on Outdoor Catering Service

PJ/Case Laws/2012-13/1054

Credit on Outdoor Catering Service - availability of

Case: COMMR. OF C. EX., MEERUT-H v/s HINDUSTAN COCO COLA BEVERAGES LTD

Citation: 2011 (274) E.L.T. 196 (Tri. - Del.)

Issue:- Whether credit is available on outdoor catering service?

Brief Facts: - The Adjudicating Authority decided this issue against the respondent. In appeal, the Commissioner (Appeals) set aside the order of the Original Adjudicating Authority and allowed the Cenvat credit, in respect of outdoor catering service by holding the same to be covered by the definition of input service.

Against this order, two appeals have been filed by Revenue before the Tribunal.

Appellant’s Contention:- Appellant pleaded that the Commissioner (Appeals) has allowed the Cenvat credit in respect of outdoor catering service on two grounds, namely that as per the provisions of Factories Act, factory with more than 50 workers is required to provide the canteen facilities for the workers and secondly the Larger Bench of the Tribunal in the case of CCE, Mumbai v. GTC Industries Limited reported in 2008-TIOL-1634-CESTAT-MUM.-LB.

Revenue relied upon the following cases:

- CCE, Chennai v. Sundaram Brake Linings [(19) S.T.R. 172 (Tri.-Chennai)]

- Maruti Suzuki Ltd. v. Commissioner [2009 (240) E.L.T. 641 (S.C.)]

- CCE, Nagpur v. Ultratech Cement Ltd [2010 (260) E.L.T. 369 (Bom.)]

- Pieco Electronics and Eleclrieals Ltd. V. Commissioner of Income Tax {[1993] 201 ITR 477 (Cal.)}

- CCE, Nagpur v. Manikgarh Cement [2010 (20) S.T.R. 56 (Bom.)]

- Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana [2007 (6) S T.R. 249 (Tri.-Del.)]

Respondent’s Contention:- Respondent contended that the issue is no longer res integra, that the same stands decided not only by Larger Bench of the Tribunal in the case of CCE, Mumbai v. GTC Industries Ltd. in favour of the respondent, but also by the judgment of Hon'ble Bombay High Court in the case of CCE, Nagpur v. Ultratech Cement Ltd. That the judgment of the Calcutta High Court in the case of Pieco Electronics and Electricals Ltd. v. Commissioner of Income-tax cited by Revenue is on the issue as to whether the equipment installed in canteen being maintained in the factory is eligible for investment allowances under Section 32A of the Income Tax Act and it is in this context that the Calcutta High Court has held that maintaining a canteen cannot be treated as integral part of manufacture of final product carried out by the assessee, that the judgment of the Bombay High Court in the case of CCE, Nagpur v. Manikgarh Cement cited by Revenue is not applicable to this case as maintaining a canteen for the workers of the factory is a requirement under the provisions of the Factory's Act and, hence, it is an activity related to business and that in view of this, there is no infirmity in the impugned order.

Reasoning of Judgment:- The Tribunal noted that in the impugned order itself the Commissioner (Appeals) has given a finding that maintaining a canteen for the workers is a requirement under the provisions of Section 46 of the Factory's Act, 1948 if the factory is employing more than 250 employees. In this case it is not under dispute that the provisions of Factory's Act are applicable. It is on this basis that the Bombay High Court in the case of CCE, Nagpur v. Ultratech Cement Ltd has held that maintaining canteen for the workers of the factory being requirement under the provisions of the Factory's Act has to be held to be an activity relating to manufacturing business. The Tribunal found that in this case the Court also considered the judgment of the Supreme Court in the case of Maruti Suzuki Ltd. v. Commissioner and has observed that in light of the judgment of the Apex Court in Maruti Suzuki Ltd the services having nexus or integral connection with the manufacture of final products as well as business of manufacture of the final product would qualify to be input service under Rule 2(1) of the Cenvat Credit Rules and it was also held that all the services used in relation to the business of manufacturing the final product are covered under the definition of input service and the outdoor services being integral part of manufacture of cement would have to be treated as input service.

The Tribunal held that the judgment of the Calcutta High Court in the case of Pieco Electronics and Elcctricals Ltd. v. Commissioner of Income-tax cited by Revenue is on the issue as to whether the equipment installed in the canteen of the factory would be eligible for investment allowance under Section 32A(2)(b)(iii) of the Income Tax Act. The issue in this case - whether the outdoor catering service received by the respondent can be treated as input service has to be examined in the light of definition of input service as given in Rule 2(1) of the Cenvat Credit Rules, 2004 and, hence, this judgment of the Calcutta High Court is not applicable to the facts of this case. As regards, the judgment of the Bombay High Court in the case of CCE, Nagpur v. Manikgarh Cement cited by Revenue, it was noted that judgment was on the issue as to whether the service of construction and repair and maintenance received by an assessee in respect of residential colony for the workers/employees would be eligible for Cenvat credit or not and on this question, the Bombay High Court held that while construction of residential colonies for the employees and their repair and maintenance may be welfare activity, the same is not an activity relating to the business of the manufacture. However in this case the maintaining of canteen for the workers being a requirement under the provisions of the Factory's Act, the same has to be held as activity related to manufacturing business.

Decision:- Appeal dismissed.

Comment:- Hence, it is clearly held that the credit will be allowed if there is statutory requirement to maintain a canteen otherwise it will be disallowed. However, the definition of “input service” has been changed and expenditure for personal welfare of employees will be disallowed. Now it is to be seen whether this decision holds good with the changed definition. The issue was almost settled but the board has again changed the definition. It is truly said that the litigation never ends, it goes on.

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PJ/Case Laws/2012-13/1054

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