Whether cenvat credit of outdoor catering services used for employee’s canteen is allowable?

PJ/CASE LAW/2016-17/3091

CaseCOMMR. OF S.T., MUMBAI-I Vs RELIANCE CAPITAL ASSET MANAGEMENT LTD.

Citation:2016 (41) S.T.R. 508 (Tri. - Mumbai)

Brief Facts:The Revenue is in appeal against Order-in-Appeal passed by the Commissioner of Central Excise and Service Tax (Appeals)-IV Mumbai; wherein the Cenvat credit in respect of outward catering service was allowed.
The brief facts are that the appellant is a service provider under the category of “Banking and Other Financial Services” and also “Business Auxiliary Services”. Show cause notice dated 17-10-2011 was issued alleging therein that the appellant is wrongly availing Cenvat credit in respect of outdoor catering service for the period 2006-07 to 2010-11 and accordingly it was proposed to disallow the Cenvat credit availed for the period amounting to Rs. 15,57,123/- and also penalty was proposed under Sections 77 & 78 of the Act. The appellant contested the show cause notice, which was adjudicated vide Order-in-Original dated 26-3-2012, wherein; it was held that the appellant have incurred expenditure by providing “canteen facility services” for their employees. As appellant is not in a business which requires ‘24x7 operations’ like BPO service, therefore the claim was not allowable as input service. At best, the “outdoor catering service” is in the nature of fringe benefits to the employees and had no relationship with the output services rendered. Being aggrieved, the appellant had preferred appeal before the Commissioner (Appeals), who vide the impugned Order-in-Appeal dated 19-2-2013 relying on the ruling of the Hon’ble Bombay High Court in the case of CCE, Nagpur v. Ultratech Cement Ltd. - 2010-TIOL-745-HC-MUM-S.T. = 2010 (20)S.T.R. 577 (Bom.) = 2010 (260)E.L.T. 369 (Bom.) and also on the ruling in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. v. CCE, Nashik - 2014-TIOL-2460-CESTAT-MUM = 2015 (38)S.T.R. 129 (Tri.-Mum.) allowed the appeal, wherein the C.B.E. & C. Circular No. 943/4/2011/CX, dated 29th April 2011 allowing the Cenvat credit was referred to. Further, the Commissioner (Appeals) have held that the Revenue has failed to bring anything on record to show that the outdoor catering service has not been integrally connected with the cost of manufacturing of the final products or to show that the service tax on the said service was born by the workers and not by the appellants. In the absence of the same it has necessary to follow the ratio laid down by the Hon’ble High Court and to set aside the same (impugned order) and allow the subject appeal with all its consequential relief to the appellants, as per law. Being aggrieved, the Revenue is in appeal before this Tribunal.
Appellant’s Contention:That the Revenue have urged the ground that reliance is placed on the ruling in the case of Ultratech Cement Ltd. is misplaced. As in the case of Ultratech Cement Ltd. the Hon’ble High Court has taken into consideration that there are more than 250 workers and it was mandatorily requirement under the provisions of the Factories Act, 1948, to provide canteen facilities to the said workers, and it was under any statutory obligation to provide canteen facilities to its employees, and accordingly prays for setting aside the order-in-appeal.
The ld. AR for the Revenue relies on the ruling in the case of Commissioner of C. C. Ex.& Customs v. Gujarat Heavy Chemicals Ltd. - 2011 (22)S.T.R. 610 (Guj.); wherein in respect of Security service provided at residential quarters maintained for workers, by the manufacturer, it was held that as not having any direct or indirect relation to the manufacturing activity, distinguishing the ruling of the Hon’ble Bombay High Court in the case of Ultratech Cement Ltd. (supra). The ld. AR also relies on the ruling of Single Member Bench in the case of IFB Industries Ltd. v. Commissioner of Central Excise, Bangalore - 2013 (32)S.T.R. 650 (Tri.-Bang.), wherein the assessee had employed less than 250 workers during the period in dispute. The ld. Single Member Bench distinguishing the ruling of the Hon’ble Bombay High Court in the case of Ultratech Cement Ltd. (supra) held that their being less than 250 workers, the service tax paid in respect of outdoor catering services is not admissible as such.

Respondent’s Contention: The ld. Counsel for the respondent/assessee vehemently argues that the canteen facilities-services is provided to its employees to have a meal and/or refreshments. Usually employees are unable to carry the midday meal with them, due to several reasons. The outdoor catering service is an essential service without which output services cannot be provided by hungry employees. Further he relied upon the ruling in the case of Heartlan Bangalore Transcription Ser. (P) Ltd. v. C.S.T., Bangalore - 2011 (21)S.T.R. 430 (Tri.-Bang.) wherein the single member bench have held that employees of the assessee are its precious input in providing its output services and without the availability of employees, there cannot be any manufacture or output service. Accordingly, relying on the Larger Bench ruling of this Tribunal in the case of CCE v. GTC Industries Ltd. it was held that, wherein employment of outdoor caterer for providing catering services was held to be essential input service in relation to business and accordingly held eligible. He further relies on the ruling of this Tribunal in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. v. CCE, Nashik vide Order No. A/1479-1480/14/SMB/C-IV, dated 21-11-2014 wherein it has been held that on outdoor catering services, input credit is allowable even after the amendment w.e.f. 1st April 2011, as the same is essential input service for providing output service of manufacture of the goods, and accordingly prays for dismissal of the appeal.
Reasoning of Judgment:- It has not been held by the Hon’ble Bombay High Court in the case of Ultratech Cement Ltd. that outdoor catering service is allowable only in the case of more than 250 workers, as it was mandatorily required under the provisions of the Factories Act, 1948 for providing canteen services. It shows that the legislation appreciates the need of canteen service for the workers at the place of work. Only to avoid the hardship for an essential need, the legislation have provided, that at least in factories having employees more than 250, should provide, that does not mean that the service was not required for any industrial or service organization having less than 250 workers. Even the employees of a smaller organization having less than 250 workers will also be hungry and required to be provided with canteen facility for the employees. Therefore, the ruling in the case of IFB Industries Ltd. (supra) per incuriam, as the provisions of Factories Act, have been wrongly interpreted with respect to the provisions of input service. Thus the respondent-assessee is entitled to Cenvat credit in respect of outdoor catering service and accordingly the appeal of the Revenue is dismissed.
Decision: Appeal Dismissed
Comment: The gist of the case is that the credit of outward catering services used in canteen for employees is available to the assessee in view of Bombay High Court’s decision in the case of Commissioner v. Ultratech Cement Ltd. [2010 (20)S.T.R. 577 (Bom.)]

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PJ/CASE LAW/2016-17/3091

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