Whether credit of service tax paid on outdoor catering for employees admissible?

PJ/CASE LAW/2015-16/2685

Case:- HINDUSTAN COCA COLA BEVERAGES PVT. LTD. VERSUS COMMR. OF C. EX., NASHIK

Citation:- 2015 (38) S.T.R. 129 (Tri. - Mumbai)

Brief facts:- These appeals were directed against two separate Orders-in-Appeal No. RPS/222/NSK/95/2013, dated 18th July, 2013 and No. NSK-EXCUS-000-APP-329-13-14, dated 27th November, 2013 passed by Commissioner (Appeals), Central Excise & Customs, Nashik. The impugned orders upheld Orders-in-Original passed by the lower authorities by which Cenvat credit on outdoor catering services was denied to the appellant cumulatively for the period December, 2011 to December, 2012.
Appellant’s contention:- The ld. Counsel appearing for the appellant submitted that the only ground on which the lower authorities had rejected the credit was that, as per the definition of input service amended w.e.f. 1st April, 2011 any input service used for personal use or consumption by any employee was not eligible for credit.
The ld. Counsel for the appellant contended that the above exclusion would apply only where the service was used for personal use or consumption by any employee, whereas in the instant case outdoor catering service was used by the appellant in relation to carrying out the business of manufacturing excisable goods. It was further submitted that credit was claimed only to the extent the cost of such expenses were borne by the Company, and not recovered from the employees.
The ld. Counsel relied on the TRU Circular D.O.F. No. 334/3/2011-TRU, dated 28 February, 2011 issued at the time of introduction of the said amendment, wherein it is stated as under:
“9. On the same lines, a service meant primarily for the personal use or consumption of employees will not constitute an input service. A list of specific services has also been given by way of example in the definition. Most of these services constitute a part of the cost-to-company package of the employee and are provided either free of charge or on concessional basis to company employees.”
The ld. Counsel also relied upon Circular No. 943/4/2011-CX., dated 29th April, 2011 which was clarified as under :

S. No.	Issue	Clarification
2.	Is the credit of only specified goods and services listed in the definition of inputs and input services not allowed such as goods used in a club, outdoor catering etc., or is the list only illustrative?	The list is only illustrative. The principle is that Cenvat credit is not allowed when any goods and services are used primarily for personal use or consumption of employees.

It was submitted that both the above circulars clarify that outdoor catering service was per se not ineligible input service but it was not eligible for credit only when it was used for personal use or consumption of any employee or a sub-group of employees. Revenue had not produced any evidence to counter submissions of the appellant, before both the lower authorities, that they have indeed used the services during their normal business operations and not for personal use or consumption or any of their employees, and that they had claimed credit only to the extent of cost borne by the company.
The ld. Counsel further submitted that deletion of the word activities relating to business from the definition of input service and adding specific clauses of inclusion and exclusion was only to make it explicit what was already implicit. He submitted that as per the pre-amendment definition of input service the ‘activities relating to business’ were eligible for credit, and hence a specific exclusion for service used for personal use or consumption was not required, but it conveyed the same meaning that all the services used for business continue to be eligible for credit unless excluded specifically.
The ld. Counsel relied on the following decisions of Hon’ble Karnataka High Court in support of their claim for credit:
(a) CCE & S.T., LTU, Bangalore v. ACE Designers Ltd. reported in 2011-TIOL-931-HC-KAR-CX = 2011 (272)E.L.T.208 (Kar.)
(b) CCE, Bangalore-III v. Stanzen Toyotetsu (I) Pvt. Ltd., reported in 2011-TIOL-866-HC-KAR-ST = 2011 (23)S.T.R.444 (Kar.).
Further, ld. Counsel relied on decision of the Hon'ble Bombay High Court in the case of Coca Cola (I) Pvt. Ltd. v. CCE, Pune-III reported in 2009 (242)E.L.T.168 (Bom.) = 2009 (15)S.T.R.657 (Bom.) wherein it was held that the input service forming part of cost of manufacturing will be entitled for credit.
Respondent’s contention:- The ld. Assistant Commissioner (AR) for the Revenue reiterated the findings of the lower authorities and submitted that since there was a specific exclusion provided in the definition of input service, outdoor catering service which was used or consumed by any employee should not be held to be eligible for credit.

Reasoning of judgment:- The bench found considerable force in the submissions made by the ld. Counsel for the appellant, that what was excluded was only the services ‘primarily for personal use or consumption of any employee’ under clause (C) of Rule 2(l) of the definition of input service. When the Government had specifically used the words such as “used primarily for personal use or consumption of any employee”, the same had to be given due effect to. In the present case the outdoor catering service was used in relation to business activities of the appellant and the service was used by all employees in general. Also, the Revenue had not rebutted the contention of the appellant, that the costs of these input services form part of the cost of final product. He also found that the services covered in clause (B) of the definition were excluded from the ambit of Cenvat credit without any such qualification of use of service for personal or official purpose.
He further found that even the Government while issuing the budget clarification or subsequent circular had clarified that what is not eligible is that service which was meant for personal use or consumption by an employee or the cost of which is included as part of salary of the employee as a cost to company basis. In the present case, the cost of such services were admittedly borne by the company and not by the employee. Therefore, he held that the appellant had correctly claimed the Cenvat credit on outdoor catering services. Accordingly, the impugned orders were set aside and the appeals were allowed with consequential relief, if any.

Decision:- Appeal allowed.

Comment:- The gist of this case is that the clause (C) of Rule 2(l) of the definition of input service clearly states “used primarily for personal use or consumption of any employee” but as in the present case the outdoor catering service was for business use only therefore the credit was admissible. As the cost of service was admittedly borne by the assessee and the cost of it was added in the product it was clearly evident that the service was for business use only and hence credit was admissible.

Prepared by:- Prayushi Jain

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PJ/CASE LAW/2015-16/2685

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