whether cenvat credit of Health and fitness service, Transport service, Electricity charges can be admissible?

PJ/Case Law/2016-17/3347

Case:- SITEL INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI-II

Citation:- 2016 (43) S.T.R. 424 (Tri. - Mumbai)

Brief facts:-This appeal is directed against Order-in-Original No. 33/ST/RN/CMR/MII/13-14, dated 28-3-2014 passed by the Commissioner of Central Excise, Mumbai Zone-II.

The facts of the case is that the appellant isengaged in the provision and export of various services namely Business Auxiliary Services, Business Support Services, Manpower Recruitment Agency and Information Technology Software Services. Against the export of the services they have filed various refund claims of accumulated Cenvat credit of various services under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 5/2006-CX (N.T.) issued thereunder. On adjudication, the Commissioner disallowed the Cenvat credit in respect of services namely Health Club and Fitness Centre, Transport Goods by Road and Electricity Expenses on the ground that these services are not falling under the definition of input service and the same has no nexus with the export of service. The appellant aggrieved by the impugned order of Commissioner, filed this appeal for an amount of Rs. 3,75,513/-.

Appellant’s contention:-Shri Keval Shah learned Chartered Accountantappearing on behalf of the appellant submits that in appellant’s own case for the same period the Commissioner (Appeals) vide Order dated 31-3-2011 allowed the Cenvat credit as well as refund in respect of the same services and the said order was accepted by the Revenue. Therefore, in the present case, the Commissioner (Appeals) could not have taken altogether different view for disallowing the credit. In this situation, a fresh show cause notice for the same period on the different grounds should not have been issued. In this regard, he place reliance on the following judgments :
(i)    CCE v. Siddharth Tubes Limited - 2004 (170)E.L.T.331 (Tri. - Del.).
(ii)   Radhasoami Satsang v. CIT - 1992 (193) ITR 321 (SC).
He submits that the appellant is BPO outfit providing business support services for various clients. For providing these services, the services in question is used only for providing the said output services. He refers to the C.B.E. & C. Circular No. 120/01/2010-S.T., dated 19-1-2010 according to which in case the absence of any input service adversely impacts the quality and efficiency of the provision of service exported are to be considered as input services. Fitness service is essential particularly for a BPO service provider. As regards Transport of Goods by Roads these services were used for carrying out day-to-day activities of the business like transportation of equipment like computers, etc., which are used for providing the BPO services. He submits that the Commissioner alleged that transportation is used for household goods of the employees which is baseless, as no evidence to this allegation was adduced. As regard electricity expenses, he submits that these expenses is towards the services provided by the landlord for common area maintenance which includes repairs to facilities, maintenance of the premises, cleaning services, electricity and other related services. These expenses have been accounted for under the heads like repairs and maintenance, electricity expenses in the books of account. Therefore, these services are directly used for up keeping the premises which in turn used for providing output services. He also submits that as per the inclusion clause of the definition of input service, one of the service is “activities relating to business”. All the above services are undisputedly used by the appellant in relation to their business activities only therefore, it is input service. He place reliance on the following judgments :
(i)    Coca Cola India Pvt. Ltd. v. CCE - 2009 (15)S.T.R.657 (Bom.) = 2009 (242)E.L.T.168 (Bom.)
(ii)   Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. - 2010 (20)S.T.R.577 (Bom.) = 2010 (260)E.L.T.369 (Bom.)
(iii) Tata Steel Limited v. Commissioner of Central Excise, Mumbai - 2011 (21)S.T.R.444 (Tri. - Mumbai)
(iv) L’Oreal India Pvt. Ltd. v. Commissioner of Central Excise, Pune - 2011 (22)S.T.R.89 (Tri.-Mumbai)
(v)   Commissioner of Central Excise, Rajkot v. Rolex Rings Pvt. Ltd. - 2008 (230)E.L.T.569 (Tri.-Ahmd.).
He submits that certain services were carved out from the definition of input service w.e.f. 1-4-2011. But in the present case, the period involved is prior to 1-4-2011, and therefore, the services, i.e., Health and Fitness Services, Transport of Goods by Road and Electricity Services were received and consumed before 1-4-2011, hence the same should be allowed. As regard penalty, he submits that the issue involved is the interpretation of definition of input service as has been decided by various High Court in this type of cases mala fide intention cannot be alleged and therefore, penalty should not have been imposed in terms of Section 80 of the Finance Act, 1994.

Respondent’s contention:- On the other hand Shri Sanjeev Nair, learned Examiner (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order. He submits that the services in question have no nexus with the export services. Health and Fitness Services and Transport of Goods by Road were used for the individual employees in their personal use therefore, the same was not used for providing output service. Hence, the lower authority has rightly denied the credit. Similarly, the electricity service is as general use and the same was not used for providing the output service. He submits that it is not correct to say that the adjudicating authority has allowed the benefit in the earlier proceedings. The authority in respect of health club and fitness centre, the refund had rejected and the other two services, i.e., transport of goods and electricity expenses were never a part of the refund proceedings and has been examined for the first time only in the present proceedings. He further submits that the transport of goods service was consumed personally by the employees. Electricity expenses is an input service for landlord and not for the tenant, i.e., appellant therefore, it is not admissible input service.

Reasoning of judgment:-Hon,ble judges havecarefully considered the submissions made by both the sides. They find that to decide whether service is an input service or otherwise. It cannot be decided only by the nomenclature of the service. It is necessary to ascertain what is the output service and whether the service in question is required for providing the output service. In the present case, the appellant is providing the BPO services. In the BPO services the major involvement is manpower who are required to perform their duties on 24x7 basis when the manpower work in odd times during the 24 hours it adversely affects the health of the employee which directly affects the performance of the services. In the BPO companies the health and fitness of the employees is very essential factor in order to run the function of a BPO company. Therefore, health and fitness services availed by the company for their employee is a necessity for providing the better quality of output service. It is to be kept in the mind that business organization is not meant for an entertainment of the employees but the ultimate objective is to achieve optimum performance by the employee. For that purpose health and fitness of the employees are very necessary. The judgments relied upon by appellant directly support the case of the appellant. As regard transport of goods as per the submission of appellant the transportation was used for the various activities of the appellant such as transportation of equipment like computers, etc. Therefore, these services are input services even as per the inclusion clause of the definition of input service. As regards, the allegation that the transport service was used for transporting the household goods of employees. There is no evidence available as per show cause notice or as per the proceedings before the adjudicating authority and Commissioner (Appeals). They, therefore, do not agree with the contention of the Revenue. The Cenvat credit in respect of electricity expense was denied only on the ground that this service was received by the landlord and not by the tenants, i.e., appellant. It is very surprising that when the premises was occupied by the appellant and day-to-day repairs and maintenance are carried out in that premises, obviously, the said services are received and used by the tenant only, i.e., the appellant and not by the landlord. The services like repair, maintenance, electricity are directly used by the BPO service provider in order to carry out their day-to-day business activity. Therefore, in their view it is an input service and credit is admissible. As per the above discussion, they find that all the three services are used in the business activity of the appellant. Needless to say that the expenses towards these services are absorbed by the appellant and in turn the same has been absorbed in the value of output service which is exported. Therefore, in their view, these three services are input services and Cenvat credit is admissible to the appellant and consequently they are entitled for the refund of the service tax of services used in the exported service. The impugned order is modified in the above terms, the appeal is allowed. The adjudicating authority shall process the refund claim accordingly.

Decision:- Appeal allowed

Comment:- The analogy of the case is that Health and fitness service is provided to BPO’s employees. Employees of BPO are to perform duties on 24x7 basis which adversely affects health of employees which directly affects performance of services. Health and fitness of employees is very essential factor in order to run function of a BPO company. Health and fitness services are a necessity for providing better quality of output service. Business organisation is not meant for entertainment of employees but its ultimate objective is to achieve optimum performance by the employee. Therefore, Health and fitness service are to be considered as input service. Hence Credit is not deniable.
For Cenvat credit of Transport of goods by road, Revenue alleged that transport service was used for transporting household goods of employees. There is no evidence available to substantiate such allegation. Hence, Credit cannot be denied.
For Cenvat credit of Electricity charges for consumption of electricity by appellant, Revenue alleged that electricity was consumed by landlord and not tenants, i.e., appellants. Premises were occupied by appellants, hence, such services received by tenants and not by landlord. Therefore, Credit is not deniable.

Prepared by:- Monika Tak

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PJ/Case Law/2016-17/3347

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