2015 (1) TMI 948 - HC - Service Tax

CENVAT Credit - Outdoor catering service - Held that - judgment 2011 (4) TMI 201 - KARNATAKA HIGH COURT has been noticed by the Tribunal but the relief sought was denied to the assessee on the ground that the assessee has employed less than 250 persons in the factory premises and therefore the assessee is not entitled to the said benefit. In the aforesaid judgment of this Court it is not laid down that to be eligible for the Cenvat credit there should be an obligation under Section 46 of the Factories Act for the assessee to run a canteen. A canteen is run for the welfare of its employees to see that they get the best food and they are able to perform well in the factory premises which has a direct nexus with the production of the goods and therefore all input tax which results in the production of the goods is to be given set off by way of Cenvat credit. Therefore the finding recorded by the Tribunal cannot be sustained. - Thus. this is the correct legal position. In that view of the matter the impugned order passed by the Tribunal is liable to be set aside. - Decided in favour of assessee.

Summary

Issues:
1. Whether a manufacturer of an industrial product can avail Cenvat credit for catering services provided by an outdoor caterer to its employees.
2. Whether the eligibility for input credit is linked to the number of employees in the factory.

Analysis:
1. The appeal was admitted to consider the issue of whether a manufacturer can claim Cenvat credit for outdoor catering services provided to employees. The Tribunal had ruled against the assessee, denying the credit. However, a previous judgment highlighted that expenses incurred on outdoor canteen services, even if a statutory obligation under the Factories Act, are not a charity but a welfare measure for employees, directly impacting production costs. The Tribunal's denial was based on the number of employees being less than 250, contrary to legal principles. The Principal Bench of CESTAT-II, New Delhi, also clarified that the number of employees does not determine the eligibility for such credit. Therefore, the Tribunal's decision was overturned, affirming that all input tax contributing to production should be eligible for Cenvat credit.

2. The second issue raised was whether the number of employees in the factory affects the availability of input credit. The judgment emphasized that the legal position dictates that the provision of catering services within the factory, regardless of the number of employees, has a direct impact on production. The Tribunal's requirement of more than 250 employees for eligibility was deemed incorrect. The decision highlighted that the purpose of providing canteen services is to ensure employees' well-being and optimal performance, directly linked to production efficiency. As such, the judgment concluded that the Tribunal's order was erroneous, and the substantial questions of law were resolved in favor of the assessee and against the Revenue, setting aside the Tribunal's decision.