whether cenvat credit proportionate to the amount recovered from the employees/workers of the appellant is required to be disallowed to the appellant or not?

PJ/CASE LAW/2015-16/2986

Case: CEMA ELECTRIC LIGHTING PRODUCTS INDIA P. LTD. versus C.C.E., AHMEDABAD-III

Citation:2015 (37) S.T.R. 754 (Tri. - Ahmd.)

Brief Fact:The issue involved in this case is whether in case of outdoor catering service, credit of service tax proportionate to the amount recovered from the employees/beneficiaries of canteen is admissible to the appellant or not. Under the above impugned order, Commissioner (Appeals) has rejected the reliance placed by the appellant on the judgment of the Larger Bench decision of the Tribunal in the case of Commissioner of Central Excise, Mumbai v. GTC Industries Limited [2008 (12)S.T.R. 468 (Tri.-LB.)] in the light of the decision of the Hon’ble High Court of Bombay in the case of Ultratech Cement Limited [2010 (260)E.L.T. 369 (Bom.) = 2010 (20)S.T.R. 577], hence the present appeal.

Appellant contention: Learned consultant of the appellant argued that as per the Factories Act, the State Government; by Rules make it mandatory for the units to run a canteen where more than 250 workers are ordinarily employed. It was further argued that as per the Rule 78(2)(g) of the Gujarat Factories Rules, 1963, only non-profit charges are to be recovered from the workers/employees for such food, drink or other items supplied but the amount recovered shall not take into consideration, the wages of the employees serving in the canteen and the cost of uniform if any provided. It was, therefore, argued that as per the relevant Factories Act and the Gujarat Factories Rules, 1963, no element of service tax has been recovered from the employees of the unit. It was further argued that this case is covered by the Larger Bench decision of the Tribunal in the case of Commissioner of Central Excise, Mumbai-V v. GTC Industries Limited (supra). It was also argued by the appellant that the demand is time-barred because the short levy was detected during the second audit of their unit and the details of credit taken were regularly shown in the returns. It was argued that for repeated audits, extended period cannot be invoked when it was not detected in the first audit by the Revenue authorities. Appellants relied upon the judgment of Hon’ble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore v. MTR Foods Limited [2012 (282)E.L.T. 196 (Kar.)] and Ahmedabad Bench decision in the case of Kay Kay Press Metal Corporation v. CCE, Valsad [2011 (270)E.L.T. 691 (Tri.-Ahmd.)].

Respondent contention:Learned AR on the other hand relied upon the decision of the Hon’ble High Court of Bombay in the case of Commissioner of Central Excise Nagpur v. Ultratech Cement Limited [2010 (20)S.T.R. 577 (Bom.)]. He would mainly emphasize on Para 39 of the judgment, which is discussed by Commissioner (Appeals) in Para-4 of the impugned order dated 14-3-2012, that cenvat credit with respect to proportionate credit to the extent embedded in the cost of food recovered from the employees/workers is required to be reversed. On the point of time-bar, he argued that the fact of recovery of amount from the employees/workers was not made known to the department, therefore the judgments relied upon by the appellant regarding time-bar are not applicable to the facts and circumstances of this case.

Reasoning of Judgment:In this appeal, there are two issues required to be decided. The first issue is whether cenvat credit proportionate to the amount recovered from the employees/workers of the appellant is required to be disallowed to the appellant or not. The second issue is whether limitation under Section 11A of the Central Excise Act will be applicable when the credit improperly taken has been noticed during the course of second audit.
So far as the first issue is concerned, the appellant has relied upon the Larger Bench decision of the Tribunal in the case of GTC Industries Limited (supra). It is noticed that Hon’ble High Court of Bombay in the case of Ultratech Cement Limited (supra) has held as follows :-
“39. The Larger Bench of CESTAT in the case of GTC Industries Ltd. (supra) has also observed that the credit of service tax would be allowable to a manufacturer even in cases where the cost of the food is borne by the worker (see last para). That part of the observation made by the Larger Bench cannot be upheld, because, once the service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. Shri Shridharan, learned Counsel for the assessee fairly conceded to the above position in law and in fact filed an affidavit affirmed by a responsible officer of the assessee wherein it is stated that the proportionate credit to the extent embedded in the cost of food recovered from the employee/worker has been reversed.”
From the above, it is seen that the Hon’ble High Court of Bombay has held that once proportionate service tax is borne by the ultimate consumer of the service, namely the worker/beneficiary, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. In view of this judgment, proportionate credit, to the extent it is embedded in the cost of food recovered from the employee/beneficiary, is not admissible to the appellant. In fact, it is clear from the facts narrated in Para-2 of the show cause notice dated 15-10-2010 issued to the appellant that demand is made only with respect to that amount which is recovered from the beneficiary/employees of the appellant. The argument of the appellant that no element of service tax is recovered from the beneficiary/employee stands defeated in view of the Hon’ble High Court of Bombay judgment in the case of Ultratech Cement Limited. It has been rightly held by Commissioner (Appeals) in his findings that no evidence has been produced by the appellant to the effect that service tax element embedded in the payment received from the employees is not recovered from the employees/beneficiary. Like a concept of unjust enrichment for refunds under Section 11B of the Central Excise Act, 1944, the onus is on the appellant to establish with documentary evidence that the element of service tax paid by the appellant is not recovered from the beneficiary/employees of the appellant. On merits, therefore, the case goes against the appellant and in favour of the Revenue.
The second issue is regarding application of limitation under Section 11A of the Central Excise Act, 1944, the appellant has relied upon the two judgments, as mentioned in Para 3 above. The first judgment in the case of MTR Foods Limited (supra), the issue involved was with respect to cenvat credit taken by M/s. MTR Foods Limited on pre-fabricated (construction) building (cold rooms) consisting of wall, roof, door, flashing window on an assumption that they are required to manufacture final products. In Para 4 of this judgment it was held by the Hon’ble High Court of Karnataka that the returns filed by the appellant in that case clearly mentioned that they have availed the cenvat credit with respect to pre-fabricated (construction) building etc. and the first audit party accepted the same and only during the second audit they noticed the mistake and initiated recovery proceedings. In this appeal, the order of the Tribunal was upheld by the Hon’ble High Court on limitation itself, without going into the merits of the case. In the present case, no documentary evidence has been brought forward by the appellant that they indicated the amounts recovered from the beneficiaries/employees in the monthly returns filed with the department. As no such details are forthcoming to have been brought to the notice of the department and the same could be known by the department only during the course of second audit. In the case of MTR Foods Limited, the inputs on which the cenvat credit was taken was pre-fabricated (construction) buildings etc. and the credit admissibility was exempted with respect to the inputs and there was no situation where a part of cenvat credit taken with respect to the amounts recovered from the employees/beneficiaries was the subject matter of denial of cenvat credit. The facts in this case are therefore, different inasmuch as no separate data were given by the appellant to the department in the monthly returns. The judgment of the Hon’ble High Court of Karnataka, in the case of MTR Foods Limited (supra) is therefore, distinguishable on facts.
In the case of Kay Kay Press Metal Corporation v. CCE, Valsad (supra), the issue involved was whether the activities undertaken by the appellant such as cutting, bending and punching of duty paid articles, plates or channels will amount to manufacture or not. It was held by the Tribunal that these activities do not amount to manufacture. As in that case, the nature of activities undertaken by the assessee were known to the department, it was held that extended period cannot be invoked in the facts and circumstances of that case. Whereas in the present appeal, the fact that certain amounts were recovered from the beneficiaries/workers by the appellants, was suppressed from the department and the same came to the knowledge of the department only through an audit and therefore, the judgment in the case of Kay Kay Press Metal Corporation (supra) is not applicable to the facts and circumstances of this case and is thus distinguishable.
On the basis of above observations, the order-in-appeal dated 14-3-2012 is required to upheld. Accordingly, the appeal filed by the appellant is rejected.

Decision: Appeal rejected

Comment: The essence of the case is that proportionate service tax is borne by the ultimate consumer of the service, namely the worker/beneficiary; the manufacturer cannot take credit of that part of the service tax which is borne by the consumer.As well as no evidence has been produced by the appellant to the effect that service tax element embedded in the payment received from the employees is not recovered from the employees/beneficiary. Like a concept of unjust enrichment for refunds under Section 11B of the Central Excise Act, 1944, the onus is on the appellant to establish with documentary evidence that the element of service tax paid by the appellant is not recovered from the beneficiary/employees of the appellant. On merits, therefore, the case goes against the appellant and in favour of the Revenue.

Prepared By:Anash kachaliya

Comments

PJ/CASE LAW/2015-16/2986

Post a Comment

Query