Whether the credit of tax paid on brokerage on finding flat for faculty available to a training institute?

PJ/CASE LAW/2015-16/2742

Case:- TATA MANAGEMENT TRAINING CENTRE VERSUSCOMMR. OF C. EX., PUNE-III

Citation:-2015 (38) S.T.R. 157 (Tri. - Mumbai)

Brief facts:- The brief facts of the case are that the Appellant filed appeal against Order of the Commissioner (Appeals), Central Excise, Pune, Order-in-Appeal No. PIII/VM/364/2010, dated 21-12-2010. The appellant was M/s. Tata Management Training Centre, at Pune (hereinafter referred to as the “appellant”) holding a Certificate of Registration bearing No. AAACT3991JST002 as required under the provisions of Section 69 of the Finance Act, 1994 as amended, for the purpose of payment of Service Tax as required under Section 68 of the Finance Act, 1994 (hereinafter referred to as the “Act”) for the services viz., for (1) Training and Coaching, (2) Management Consultants and (3) Convention Services as defined under Section 65(27), (65) and (32) respectively of the Finance Act, 1994 and also availing the benefit of Cenvat credit under the provisions of Cenvat Credit Rules, 2004.
In the course of scrutiny of records by the Revenue, it was seen that the appellant had taken Cenvat credit in respect of inputs services being (1) maintenance of pond and garden, (2) Extension of Road, (3) Brokerage amount on account of purchase/lease of flats for faculty, (4) Fabrication, fencing of compound, (5) Jogging Track repairs which did not appear to be the input services used for the output services rendered by the appellant. Show cause notice was issued on 1-10-2007 invoking the extended period with respect to credit availed during the period June 2005 to March 2007, directing to the appellant to show cause as to why an amount of Rs. 2, 01,173/- along with interest should not be recovered, being inadmissible amount of credit availed along with interest and why not penalty be imposed for the period June, 2005 to March, 2007. The appellant contested the show cause notice. The appellant explained in its reply the credit for inputs service was availed on the basis of proper invoices raised by the Service provider. Further, such services had been utilized in its activity of providing taxable output services. The input services in question were covered by the inclusive parts of the definition of “input service”. The Adjudicating authority examined the definition of input service as defined in Rule 2(l) of Cenvat Credit Rules and observed as follows :-
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“Definition of input service has been split into two parts. First part states that where any service is used for providing an output service the service would qualify as ‘input service’. Therefore, any service having direct nexus in providing output service will get covered in first part. Whereas, several services having an indirect nexus with the output service but is used in activities relating to business of the provider of output services will get covered in second part of the definition. In view of this, if any service is used for providing the output service, CENVAT credit is admissible.
In the present case CENVAT credit has been claimed by the Noticee in respect of Training and Coaching, Management Consultants and Convention Services’ Noticee have utilized the credit on output services such as (1) maintenance of pond and garden, (2) Extension of Road, (3) Brokerage amount on account of purchase/lease of flats, (4) Fabrication, fencing of compound, (5) Jogging Track repairs. Noticee have claimed that the maintenance of pond and garden, extension of roads, fabrication, fencing of compound, jogging track repair services have been used by them in maintaining/renovating/repairing of their training campus in good running condition for purpose of providing output services of ‘Training and Coaching, Management Consultants and Convention Services’ and these activities relate to their business. Further the services of brokerage for purchase/lease of flats are for procuring residential accommodation for their-in-house faculty members who take lectures in their training programme and this service is also sued for providing output service. On this point I have observed that unless and until the premises are maintained in good and running condition for the purpose of output services i.e. ‘Training and Coaching, Management Consultants and Convention Services’.
Further, the second part of the definition clearly includes the services provided by Noticee as the said services includes services used in relation to setting up modernization, renovation or repairs of a factory, premises of provider of output service. On the basis of above discussions I hold that ‘Training and Coaching, Management Consultants and Convention Services’ have direct or indirect connection and are essentially required for the output service. In view of above, I believe that ‘Training and Coaching Convention Services’ are covered as ‘input service’ under clause (ii) of the Rule 2(1) of the Credit Rules. As I have already concluded that in the present context the ‘Training and Coaching, Management Consultants and Convention Services’ are covered under the second part of the definition of ‘input service’ Rule 2(1) of the Credit Rules. There is no need to discuss the admissibility of the said service as input service under the definition.”
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The Adjudicating authority observed in the facts and circumstances, extended period was not invokable and was pleased to drop the proceeding. Being aggrieved by the Order-in-Original, the Revenue preferred appeal before the Commissioner (Appeals) on the following grounds :-
“i. That services of brokerage for purchase/lease of flats are for procuring residential accommodation outside their business premises for faculty members and not for the activities of their business.
ii. The Revenue submits that there is no nexus of services of brokerage for purchase/lease of flats are for procuring residential accommodation with the output service of commercial training and coaching services, management consultancy or convention services.
iii. The Revenue further submitted that the above said service is only a staff welfare activity. Thus the said service is in no way concerned either directly or indirectly to the output service and hence such input service does not fall within the ambit of definition of ‘input service’ in terms of Rule 2 of the CENVAT Credit Rules, 2004.
iv. Authority on Advance Rulings (AAR) in its decision reported in 2008 (232)E.L.T.169 (AAR) has held that provision of building for housing, schooling, recreation etc. for workers is a welfare measure having no nexus with manufacture, storage or sale - construction of quarters for workers not an input service - Rule 2(l) of the Cenvat Credit Rules, 2004.
v. The Revenue submitted that in view of the above order-in-original issued by the Assistant Commissioner, Service Tax is not proper, legal and correct.
vi. The Revenue finally prayed for modifying the impugned order-in-original by disallowing the CENVAT credit of Rs. 15,940/- (Service Tax) and Rs. 319/- (E. Cess) availed on brokerage service for purchase/lease of flats for procuring residential accommodation by the respondent on and confirm the demand to that extent.”
The Commissioner (Appeals) vide the impugned order was pleased to disallow the Cenvat credit availed in respect of services of the broker utilised for purchased/lease of flats for the purpose of procuring residential accommodation for their faculty, holding that it is in the nature of staff welfare expenses, relying on the Ruling of AAR in the case of VMT Spinning Co. Ltd. -2008 (232)E.L.T.169 (A.A.R.) = 2008 (12)S.T.R.388 (A.A.R.), Being aggrieved the appellant assessee filed the present appeal.

Appellant’s contention:-The appellant stated that no training can be imparted without the faculty available. The appellant was engaged in providing training which was its output service. So any expenses incurred by it for input services for ensuring the availability of faculty by way of brokerage expenses for securing residential accommodation for the faculty or any other similar expenditure like advertisement expenses for recruiting faculty, etc. were allowable as input service. That further appellant relied upon the Ruling of the Hon’ble Karnataka High Court in the case of Toyota Kirloskar Motor Pvt. Ltd. - 2011 (24)S.T.R.645 (Kar.), wherein Toyota had availed input services being expenses on service availed for celebrating Rajyostava Day in the nature of shamiana, food/snacks expenses, photography and entertainment. It was observed by the Hon’ble High Court of Karnataka, it was common experience that where such occasions were not celebrated their occurred trouble both inside and outside factory. In such circumstances celebration of such occasions cannot be separated from the business of manufacture. They also relied on the Ruling of the Hon’ble Bombay High Court in the case of Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. - 2010 (20)S.T.R.577 = 2010 (260)E.L.T.369 (Bom.)and observed, to find out whether, there was nexus or integral connection with the manufacture of final products, we had to keep in mind the exhaustive definition contained in input service and then the word used in, there in, that was, the activity relating to business and then decide whether any particular service constituted input service.
That appellant further relied on the ruling of this Tribunal in the case of Zee Telefilms Ltd. - 2006 (4)S.T.R.349 (Tri.-Mumbai)wherein it had been held that Rulings of Advance Authority, they were binding only on parties concerned and were not a precedent on persons not party therein.

Respondent’s contention:- The ld. AR relied on the impugned order and also relied on the Ruling of AAR in the case VMT Spinning Co. Ltd. (supra).

Reasoning of judgment:- Having considered the rival contentions, he found that the expenses incurred for input service by the appellant by way of brokerage for finding accommodation for its faculty was related to the output service of providing training. The appellant cannot provide the output service of training without having the faculty available for the same. Thus the impugned order was set aside. The appeal was allowed with consequential relief, if any.

Decision:-Appeal allowed.

Comment:- The gist of the case is that in the credit of all input services is available which are provided in relation to output service directly or indirectly. As in the case in hand the credit of tax paid on brokerage for faculty accommodation was available to coaching institute as the output service could not be provided without the faculty. Hence the service was held to be used in relation to output service of Training and Coaching service.

Prepared by:- Prayushi Jain

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PJ/CASE LAW/2015-16/2742

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