Security services to residential quarters maintained for workers- eligible as input service?

PJ/Case Laws/2011-12/1226

Case: Commissioner of Central Excise & Customs versus M/s Gujarat Heavy Chemicals Ltd.

Citation: 2011-TIOL-383-HC-AHM-ST

Issue: Whether the security service provided by the respondent at the residential quarters maintained for the workers would be included in the term 'input service' as defined in rule 2(l) of the Cenvat Credit Rules.

Brief Facts:Respondent-assessee is engaged in manufacture of soda ash. The Assessing Officer noticed that they had taken Cenvat Credit for providing security services in residential colony maintained by the Company for its workers. The Assessing Officer, therefore, considered the entitlement of the assessee to such Cenvat Credit along with other contentious issues.
After issuance of show cause notice and hearing, the Assessing Officer disallowed Cenvat Credit on service tax paid on security services in the residential colony.
In appeal, the Commissioner (Appeals) while redressing the grievance of the respondent-assessee on number of issues maintained the order of the Adjudicating authority with respect to service tax on security services.
In further appeal before the Tribunal, it was held by the Tribunal that the assessee is entitled to avail the credit of duty paid on the security services utilized for residential purposes and allow the appeal with consequential relief to the appellant.
Hence, Revenue is before the High Court.
In response to the notice issued by the High Court, assessee raised the preliminary objection with respect to maintainability of appeal on the ground of smallness of the claim.
Appellant’s Contention:Revenue pointed to Circular of CBEC dated 10^th November, 2008 that irrespective of the quantum of claim, appeal can be raised for specified reasons. It was submitted that the circumstance in this case was of recurring nature.
On merits, it was submitted that the service tax paid on security service maintained by the assessee in the residential quarters cannot be covered under the definition 'input service' as defined in Rule 2(l) of the Cenvat Credit Rules. Revenue submitted that there is no nexus between the business activity of the assessee and service provided. Reliance was placed on the decision of the Bombay High Court in the case of CCE, Nagpur v. Manikgarh Cement, 2010 (20) STR 456 (Bom.).
Revenue pointed out that the Tribunal in the impugned judgment has placed reliance on a decision of Bombay Tribunal in the case of Manikgarh Cement v. Commissioner of C.Ex. & Customs, Nagpur reported in 2008(9) STR 554 (Tri.-Mumbai) which was reversed by the Bombay High Court in the case Manikgarh Cement (supra). Revenue also relied on the decision of the Apex Court in the case of Maruti Suzuki Ltd v. CCE, Delhi, 2009 (240) ELT 641 (SC).

Respondent’s Contention:Assessee conceded that the issue is one of recurring nature.
On merits, the Assessee contended that the definition of the term 'input service' contained in section 2(l) of the Cenvat Rules is sufficiently wide to include range of services used by the manufacturer for and or in relation to business. Reliance was placed on the case of CCE, Nagpur v. Ultra Tech Cement Ltd., 2010 (20) STR 577(Bom.) has examined the issue at length and held that outdoor catering services provided by the manufacturer is an 'input service' within the meaning of rule 2(l) of the Cenvat Credit Rules.
Assessee further relied on the decision of the Bombay High Court in the case of Coca Cola India Pvt. Ltd v. CCE Pune, III, 2009 (15) STR 657 (Bom.) wherein the Bombay High Court was pleased to allow benefit of Cenvat Credit on service tax to the manufacturer of concentrate on advertising service used for marketing of soft drink. Counsel also relied on a decision of the Apex court in the case of Ramala Sahkari Chini Mills Ltd. v. CCE, Meerut -I, 2010 (260) ELT 321 (SC) by which, the decision of the Apex Court in the case of Maruti Suzuki Ltd (supra) has been referred to a Larger Bench.

Reasoning of the Judgment:The High Court held that definition of input service is expressed in the form of ‘means’ and ‘includes’. ‘Means’ part of the definition contains, inter alia, service used by he manufacture of final products and clearance of final products from the place of removal. The definition is exhaustive in nature. It is worded to include variety of services used not only for, but in relation to manufacture of final products and also for clearance of final products upto place of removal.
The High Court do not see any connection between the security service provided by the manufacturer in the residential quarters maintained for the workers as having any direct or indirect relation in the activity of manufacture of the final product. This is also the view of the Bombay High Court in the case of Manikgarh Cement (supra).
The High Court may notice that the Apex Court in the case of Maruti Suzuki Ltd was of the opinion that the electricity generated by the assessee and cleared to grid for distribution would not be part of manufacturing activity and be categorized as input used in manufacture of final product.
In the case of Ultra Tech Cement Ltd, on which respondent has placed heavy reliance, the Bombay High Court was considering outdoor catering service provided by the employer for its employees. It was a case wherein to provide for the canteen facilities to the workers was mandatory and failure to do so would entail penal consequences. It was on this background, the Bombay High Court held that outdoor catering services provided by the manufacturer to its workers would be covered within provisions of rule 2(l) of the Rules.
In the present case, the act of providing residential quarters by the manufacturer to its employees was voluntary. Providing further security service in such residential quarters was also an act voluntary in nature. Independently, the High Court finds that such activity cannot be termed within the sweep of expression of 'input service' as provided in rule 2(l) of the Rules.

Decision:Revenue’s Appeal is allowed.

Comment:- This is very important decision in favour of revenue wherein it was held that the activity which is statutorily essential or which is used in manufacture of final product then the credit will be admissible. Every expenditure which is booked in books of accounts is not eligible for credit.

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PJ/Case Laws/2011-12/1226

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