2015 (3) TMI 348 - HC - Service Tax

Cenvat Credit - input services - outdoor catering services - Rule 2(l) of the Cenvat Credit Rules, 2004 - The Department was of the view that catering/canteen services were neither used in or in relation to the manufacture or clearance of final product nor it could be said to be an activity relating to business and proceed to disallow the cenvat credit. - Held that - the issue as decided by the Tribunal and the various Courts clearly settled the issue that the Cenvat Credit has been properly availed in respect of outdoor catering services. The only other argument raised by the Revenue is that Notification No.3 of 2011 dated 01.03.2011, which excluded the services in the question by amendment dated 01.03.2011, is by way of substitution and therefore, it should take into effect in respect of the period in dispute also - Held that - Such a plea, at the threshold, has to be rejected, since Rule 1b of the Rules clearly states that the said amendment shall come into force on 1st day of April 2011 - Decided against the revenue.

Summary

Issues Involved:
1. Whether the assessee can utilize the Cenvat credit facilities in respect of outdoor catering services provided in the factory for its employees as input service.

Issue-wise Detailed Analysis:

1. Utilization of Cenvat Credit for Outdoor Catering Services:
The core issue in this appeal is whether the assessee can utilize the Cenvat credit facilities for outdoor catering services provided in the factory for its employees as input service. The Department contended that such services do not fall within the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004, and thus disallowed the credit. The Adjudicating Authority supported this view, but the Commissioner (Appeals) allowed the benefit for outdoor catering services. The Tribunal, following the Larger Bench decision in Commissioner of Central Excise, Mumbai V. GTC Industries Ltd., held that Cenvat credit is admissible on 'outdoor catering service' as it relates to business.

2. Definition of 'Input Service':
The Bombay High Court in CCE V. Ultratech Cement Ltd. interpreted 'input service' to include services used directly or indirectly in or in relation to the manufacture of final products and services used in relation to the business of manufacturing final products. The definition is broad and covers services used prior to, during, and after the manufacture of final products, extending to all services used in relation to the business of manufacturing the final product.

3. Nexus with Business:
The expression 'activities in relation to business' postulates activities integrally connected with the business of the assessee. In this case, the assessee is mandated under the Factories Act, 1948, to provide canteen facilities, which entails penal consequences for non-compliance. Therefore, the use of outdoor catering services has a nexus with the business of manufacturing the final product, cement.

4. Applicability of Maruti Suzuki Ltd. Decision:
The Supreme Court in Maruti Suzuki Ltd. emphasized the need for a nexus between the input and the manufacture of the final product. This principle applies equally to 'input service,' meaning services having a nexus or integral connection with the manufacture of final products or the business of manufacturing the final product qualify as input services.

5. Legislative Intent and Inclusive Definition:
The definition of 'input service' is inclusive and not exhaustive, covering all conceivable services used in the business of manufacturing final products. The expression 'such as' in the definition is illustrative, not restrictive, indicating the Legislature's intent to cover a wide range of services.

6. Amendment and Retrospective Effect:
The Revenue argued that the amendment to Rule 2(l) by Notification No.3 of 2011, which excluded certain services, should apply retrospectively. However, the amendment explicitly states it comes into force on April 1, 2011, and thus does not affect the period in dispute.

7. Proportionate Credit:
The Tribunal and the High Court held that the manufacturer cannot take credit for the part of the service tax borne by the worker. The assessee had reversed the proportionate credit embedded in the cost of food recovered from employees, which needs verification by the Excise Authorities.

Conclusion:
The High Court, following the principles laid down by the Bombay High Court and other precedents, held that the Cenvat Credit on outdoor catering services was properly availed by the assessee. The appeal by the Revenue was dismissed, affirming the Tribunal's order, with no costs. The connected Miscellaneous Petitions were also closed.