Whether the Cenvat credit is admissible on the service tax paid on the employee welfare activity.

PJ/Case Laws/ 2012-13/ 1192

CASE: M/s ONE ADVERTISING & COMMUNICATION SERVICES LTD Vs COMMISSIONER OF SERVICE TAX, AHMEDABAD

CITATION: 2012-TIOL-969-CESTAT-AHM

ISSUE: Whether the Cenvat credit is admissible on the service tax paid on the employee welfare activity.

BRIEF FACTS: The appellant is engaged in providing Advertising services to their customers and availed CENVAT Credit of Service Tax paid on Hotel services, Catering service, Decorator service and Pathological laboratory service. Proceedings were initiated on the ground that such credit is not admissible, which has resulted in impugned order, whereby the CENVAT Credit availed has been denied and penalty has been imposed under various Sections of Finance Act, 1994.

APPELLANTS CONTENTION:-Appellant argued that as regards Catering service, the authorized representative submitted that the Catering service was taken for the purpose of hosting a party for the client for business promotion and therefore credit has been taken correctly. The ld. authorized representative submitted that since the amount involved is small, he would not like to increase the additional paper work and he is willing to accept that CENVAT Credit is not admissible in respect services received and involved in the present appeal. As regards Pathological Laboratory services, it was submitted that the appellant has about 150 employees and the Company conducted blood-test and health-check for the benefit of employees and it was submitted that this will help to boost the employee morale and would result in improved business and therefore the credit is admissible.

As regards Hotelservices, the ld. authorized representative submitted that the Service Tax was paid in respectof Hotel rent for the stay of their Chief Executive for the purpose of business and meeting theclients. Therefore it is directly related to the business and thus credit is allowed.As regards Decorator service, the ld.authorized representative submitted a copy of invoice raised byM/s Gandhi Associates as decorator when the company has provided event management service to M/s Gujarat - Alkalis & Chemicals Ltd., Ahmedabad. It was submitted that from the invoices raised by M/s Gandhi Associates and the appellant, it can be seen that the service received from Gandhi Associates formed a part of the expenses claimed from M/Gujarat Alkalis & Chemicals Ltd., which would clearly show that there is a clear nexus between output service and input service.

RESPONDENTS CONTENTION:-The ld.A.R. pointed out that hosting a party for the client for business promotion was not raised before both the lower authorities and was not mentioned in the appeal also. It was explained to authorized representative that in such event, an application for considering the additional grounds is required to be filed.

The Ld. AR relied upon the order of Hon'ble High Court of Gujarat in the case of CCE Vs Gujarat Heavy Chemicals Ltd - 2011 (22) STR 610 (Guj.), wherein a view has beentaken that Service Tax paid on welfare activity are not admissible as CENVAT Credit.

REASONING OF JUDGEMENT: According to the definition of input service, the input service includes the services used in relation to activities related to business. This particular definition, when interpreted can lead to bonafidely belief that credit on the activities discussed above, could be admissible. In the absence of any evidence to show that the appellant has deliberately availed the Cenvat Credit with intent to evade duty, the benefit of provision of section 80 of Finance Act, 1994 cab be extended.

Cenvat credit in respect of Service Tax paid on catering service and Pathological Laboratory service are hald as inadmissible in view of the submission that the appellant is dropping the claim for Cenvat Credit in respect of these two services. Service tax credit in respect of Hotel services and Decorator service is held as admissible to the appellant. Penalties under various sections of Finance Act, 1994 are set aside by invoking the provision of section 80 of Finance Act, 1994.

DECISION:-Stay Petition as well as the appeal get disposed off.

Comment:- the allowance of credit on input service has been big dispute between the department and assessee. The credit on all business expenditure was allowed by the High court but the department is contending that welfare activity of employees will not be allowed. Even this view point of department is reflected in change in definition of “input service” from Budget 2011 when the services in nature of personal services to employees has been disallowed.

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PJ/Case Laws/ 2012-13/ 1192

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