2015 (9) TMI 944 - AT - Service Tax

Disallowance of CENVAT Credit - Rent a cab service, Outdoor catering service, services by Air Travel agency, services by CHA in respect of exports, cleaning and Repair/maintenance service of Guest House, Gymnasium and sports club/sports ground etc - Penalty under Section 11AC(1)(a) of the Central Excise Act read with Rule 15(2) of the Cenvat Credit Rules - Held that - Documents produced by the appellant, as regards the canteen expenses , which is only the labour component for manpower engaged for running the canteen, I hold that no proportionate disallowance is called for as there is no element of outdoor catering nor there is any element of recovery of Service Tax from the employees - As regards the gardening expenses , the credit on the same is fully allowable as the same is required for maintaining the goods atmosphere in the manufacturing area and also a condition precedent laid down by the State Pollution Control Board, without which the appellant cannot resort to manufacturing activity. As regards the cleaning expenses , the same have been incurred in the maintenance of residential colony, which forms part of the factory premises, I take notice of the fact that the colony is part of the factory premises as per the approved map by the Central Excise authorities. Further, there is no Municipality in the area where the factory and colony is located for providing the services of township maintenance. The colony is a small industrial township, created by the appellant for running its factory and as an industrial township; the same is required to be maintained by the Industry itself (Article 243 of the Constitution of India). As such the disallowance of cleaning expenses is set aside. There is no allegation in the show-cause notice to disallow any proportionate amount towards the amount recovered in part from the employees and as such the said disallowance is held to be unsustainable and the same is set aside. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of CENVAT Credit on various input services.
2. Allegation of wrongly availed credit and recovery of amount.
3. Contesting the show-cause notice and imposition of penalty.
4. Grounds for setting aside extended period demand.
5. Disallowance details including canteen, cleaning, gardening, repair, sports club, and vehicle hiring expenses.
6. Arguments regarding essentiality of input services for manufacturing activity.
7. Dispute over proportionate disallowance of certain expenses.
8. Compliance with statutory requirements and environmental regulations.
9. Ruling on appeal and confirmation of disallowances.

Analysis:
The judgment by the Appellate Tribunal CESTAT MUMBAI involved the disallowance of CENVAT Credit on input services by M/s Mukand Ltd, a manufacturing company. A show cause notice alleged wrongful availment of credit on services like rent a cab, outdoor catering, air travel agency, CHA services, cleaning, repair/maintenance, among others. The Commissioner partially disallowed the credit, imposed penalties, and ordered recovery. The appellant contested, arguing no suppression or fraud, with credit reflected in books and returns. The Tribunal examined each disallowed expense, such as canteen, cleaning, gardening, repair, sports club, and vehicle hiring charges.

Regarding canteen expenses, the Tribunal found no outdoor catering service availed, allowing the credit for manpower deployment in the factory canteen. The repair and maintenance of residential colony and sports club/ground expenses were withdrawn. The Tribunal ruled against the proportionate disallowance of vehicle hiring charges, not mentioned in the notice. Gardening expenses were deemed essential for factory operations due to environmental regulations, thus credit was allowed. Similarly, cleaning expenses for the residential colony were considered necessary, and the disallowance was set aside.

In conclusion, the Tribunal allowed the appeal partially, confirming disallowances for repair and maintenance of the residential colony and sports club/grounds. The judgment emphasized the essentiality of certain input services for manufacturing activities and compliance with statutory and environmental requirements. The ruling highlighted the importance of specific grounds for disallowance and set aside unjustified proportionate disallowances, ultimately favoring the appellant in part.