whether credit of mandap keeper and outdoor catering service available to coaching institute?

PJ/CASE LAW/2015-16/2616

Case:-PALMTECH INSTITUTIONS INDIA PVT. LTD. Versus COMMR. OF C. EX. & S.T., JAIPUR

Citation:- 2015 (38) S.T.R. 54 (Tri. - Del.)

Brief facts:-The appellants had come in appeal against the Order-in-Appeal No. 137(VC) ST/JPR-I/2013, dated 25-9-2013 passed by the Commissioner of Central Excise (Appeals), Jaipur. Commissioner (Appeals) had upheld the order of the adjudicating authority wherein Cenvat credit was denied to the appellant.

The facts briefly stated were that the appellants are engaged in providing commercial training and coaching services under Section 65(105)(zzc) of the Finance Act, 1994. During the course of audit of records of the factory, it was observed that the appellants had taken input service credit on outdoor catering and mandap keeper services. The show cause notice was issued to the appellants alleging that the appellants had wrongly availed input service credit on catering and mandap keeper services in contravention of provisions of Rule (l)(i) read with Rule 3 of Cenvat Credit Rules, 2004. Notice for recovery of service tax Rs. 45,220/- with interest under Rule 14 of Cenvat Credit Rules and imposition of penalty under Rule 15 of Cenvat Credit Rules was issued. The Adjudicating authority confirmed the demand with interest and penalty under Rule 15 of Cenvat Credit Rules read with Rule 78 of Finance Act, 1994. Revenue had alleged that input services were used for organizing a function to facilitate the students who have done exceptionally well in the previous academic session did not fall within eligible input service.

Appellant’s contention:-The appellants submitted that they had not collected the money from the students. This had also not been alleged in the show cause notice. Learned Counsel for the appellant also pointed out that the issue was squarely covered by the judgment of Hon’ble High Court of Karnataka in the case of Toyota Kirloskar Motor Pvt. Ltd. - 2011 (24)S.T.R.645 (Kar.). She specifically referred to the para 8 and 11 of the judgment. She invited attention to the definition of input service as given under Rule 2(l) of the Cenvat Credit Rules, 2004. Rule 2(l) reads as under :-

“Input service” means any service, -

(i) used by a provider of taxable service for providing an input service, or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and (clearance of final products upto the place of removal) and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation of inputs or capital goods and outward transportation up to the place of removal.”.

On the above basis, request was made to grant the input service credit.

Respondent’s contention:-On the other hand, ld. DR had relied upon thejudgment of Hon’ble Bombay High Court in the case of CCE, Nagpur v. Ultratech Cement Ltd. - 2010 (260)E.L.T. 369 (Bom.) = 2010 (20)S.T.R.577 (Bom.) specifically to para 37 of the judgment where there was also reference to the judgment of Bombay High Court in the case of Coca Cola India Pvt. Ltd. - 2009 (242) E.L.T. 168 (Bom.) = 2009 (15)S.T.R. 657 (Bom.) which reads as under :

“In the case of Coca Cola India Pvt. Ltd. (supra) a Division Bench of this Court has considered scope of the expression “input service” as defined in Rule 2(l) of 2004 Rules. In that case, the question for consideration was, whether a manufacturer of non-alcoholic beverage bases (concentrates) is eligible to avail credit of Service Tax paid on advertisement, sales promotion, market research etc. The argument of the Revenue in that case was that the advertisements are not relatable to the concentrate manufactured by Coca Cola India Pvt. Ltd. (supra) and hence, the credit in respect thereof cannot be allowed. Considering the Finance Minister’s Budget Speech for 2004-05, press note issued by the Ministry of Finance along with the Draft 2004 Rules and various decisions of the Apex Court, this Court held that the expression ‘activities in relation to business’ in the inclusive part of the definition of ‘input service’ further widens the scope of input service so as to cover all services used in the business of manufacturing the final products and that the said definition is not restricted to the services enumerated in the definition of input service itself. The Court rejected the contention of the Revenue that a service to qualify as an input service must be used in or in relation to the manufacture of the final products and held that any service used in relation to the business of manufacturing the final product would be an eligible input service.”

In para 39, there was also reference to the judgmentof Larger Bench of CESTAT in the case of GTC IndustriesLtd.- 2008 (12)S.T.R. 468 (Tribunal-LB) wherein it had been held 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. That part of the observation made by the Larger Bench cannot be upheld, because, once the Service Tax was borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the Service Tax which was borne by the consumer. It had been stated that the proportionate credit to the extent embedded in the cost of food recovered from the employee/worker had been reversed. DR contended that these input services were not integrally connected to their taxable event and input service credit could not be availed on these input services.

Reasoning of judgment:-After hearing both sides it was observed that Main issue for consideration was whether input service credit availed on outdoor catering and mandap keeper services available to the appellants or not.

In the earlier judgment referred to in the case of GTC Industries, it was specifically pointed out that the credit of Service Tax would be allowable to a manufacturer even in cases where the cost of the food was borne by the workers. That part of the observation made by the Larger Bench could not be upheld, because, once the Service Tax was 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.

Ld. DR pointed out that despite their efforts, the appellant did not provide information regarding expenses recovered from the students who participated in the function. On the other hand, ld. Counsel submitted that they have not collected any money from the students and basically it was facilitation-cum-promotional event and relied upon on the judgment of Hon’ble Karnataka High Court in the case of Toyota Kirloskar Motors Pvt. Ltd.

There was nothing on record to show whether any expenses were recovered by the appellants from the students. Further there was no allegation made in the show cause notice by the Revenue. Considering the submission of ld. Counsel and after going through the judgment in the case of Toyota Kirloskar Motors Pvt. Ltd. specifically in paras 8 and 11 wherein these types of activities have been given a broad interpretation and input service credit has been allowed. They found force in the contention of the appellants. Further, present facts were similar to the facts of judgment quoted by the appellants. Following the judgment as above, it was considered view that input service credit had rightly been availed at that relevant time.

Decision:-appeal allowed

Comment:-The gist of this case is that the expenses of mandap keeper and outdoor catering was not recovered from the students. Moreover, these services are broadly covered by judgement given by High Court and hence the credit is admissible.

{Prepared by:-Prayushi jain}

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