2012 (12) TMI 228 - AT - Central Excise

Cenvat Credit - rent-a-cab services - transportation of workers/employees from their factory to homes and back - for sending sick employees to hospital - for transporting children of employees/workers to school/tuition centres and back - Input Service - Cenvat credit demand, Interest and Penalty - nexus with manufacture of Goods - held that - service of rent-a-cab service availed for bringing employees to the factory and dropping them back home is covered by the definition of Input Service and appellant had rightly claimed Cenvat Credit. Decision in C.C.E., Bangalore vs. Stanzen Toyotetsu India (P) Ltd. 2011 (4) TMI 201 - KARNATAKA HIGH COURT and C.C.E., Bangalore III vs. T.G. Kirloska Automoiive Pvt. Ltd 2011 (4) TMI 206 - KARNATAKA HIGH COURT ; that also judgment of Hon ble Punjab & Haryana High Court in the case of C.C.E., Chandigarh I vs. M/s Federal Mogul Goetze (India) Ltd 2011 (9) TMI 120 - PUNJAB AND HARYANA HIGH COURT is followed. cenvat credit in relation to the ambulance services - held that - Factory owner is under legal obligation to ensure basic medical facility for the welfare of the employees who may suffer from injury in accident or may suddenly fall sick. In the instant case, hiring of ambulance for carrying sick employees to the hospital for treatment is extension of the aforesaid legal obligation of the assessee - health of the workers in a factory has direct relation to its output - service tax paid on ambulance service i.e rent-a-cab service for ambulance, by the appellant in respect of welfare of employees has nexus with the production of final product - Com has fallen in error in disallowing aforesaid cenvat credit to the appellant. Cenvat credit for transportation of employees children to schools/tuition centres - is a welfare activity which is not covered by the definition of Input Service - cenvat credit demand of Rs.62,435/- is upheld along with interest, rest of cenvat credit demand is set aside. Since the issue involved in this appeal relates to interpretation of the provisions of Cenvat Credit Rules, penalty of Rs.10,000/- imposed on the appellant is also waived.

Issues:
1. Eligibility of cenvat credit for rent-a-cab services for various purposes.
2. Interpretation of Input Service under Cenvat Credit Rules, 2004.
3. Nexus of rent-a-cab services with the manufacture of final product.

Issue 1: Eligibility of cenvat credit for rent-a-cab services

The Appellant, a manufacturer of zinc products, availed cenvat credit for rent-a-cab services for transporting workers, sick employees, and workers' children. The Department disputed the eligibility of cenvat credit for these services and issued a show cause notice for recovery. The Commissioner held that the services were not covered by the definition of Input Service. The Appellant cited judgments from the Karnataka High Court and Punjab & Haryana High Court in their favor, arguing that these services were essential for employee welfare and production. The Tribunal, considering the legal obligations under the Factories Act, ruled in favor of the Appellant for rent-a-cab services for transporting workers and sick employees. However, for transporting workers' children to schools/tuition centers, the Tribunal upheld the cenvat credit demand based on a judgment from the Bombay High Court.

Issue 2: Interpretation of Input Service under Cenvat Credit Rules, 2004

The Tribunal analyzed the definition of Input Service under the Cenvat Credit Rules, 2004, in the context of rent-a-cab services availed by the Appellant. It considered the legal obligations imposed by the Factories Act, specifically Section 45(4), which mandates certain medical facilities for factory employees. The Tribunal concluded that hiring an ambulance for transporting sick employees to the hospital was an extension of the legal obligation to provide medical services, directly impacting the employees' health and, consequently, the production output. Therefore, the Tribunal held that the rent-a-cab service for ambulance had a nexus with the production of the final product, contrary to the Commissioner's decision.

Issue 3: Nexus of rent-a-cab services with the manufacture of final product

Regarding the nexus of rent-a-cab services with the manufacture of the final product, the Tribunal differentiated between services for employee welfare and those directly related to production. It acknowledged the importance of providing medical services to employees as a welfare measure with a direct impact on production. However, it determined that transporting employees' children to schools/tuition centers was a welfare activity not directly linked to the production process. Relying on a judgment from the Bombay High Court, the Tribunal upheld the cenvat credit demand for this specific service while setting aside the rest of the demand. The Tribunal also waived the penalty imposed on the Appellant, considering the interpretational nature of the issues under the Cenvat Credit Rules.

In conclusion, the Tribunal ruled in favor of the Appellant for rent-a-cab services related to transporting workers and sick employees, emphasizing the nexus with legal obligations and employee welfare. However, for services related to transporting workers' children, the Tribunal upheld the cenvat credit demand based on the distinction between welfare activities and services directly impacting production. The Tribunal's decision highlighted the importance of interpreting the provisions of the Cenvat Credit Rules in the context of specific services availed by manufacturers.

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