2009 (3) TMI 147 - AT - Service Tax

Cenvat Credit Input Services - The issue to be decided is whether Cenvat credit of service tax paid on catering service received by the assessee was admissible to them as input service tax credit in terms of Explanation to Rule 2 of the Cenvat Credit Rules 2004 during October 2006 to June 2007 held that - It is settled law now that Cenvat credit of service tax paid on catering service would be available as input service to a manufacturer having a canteen attached to his factory where the cost of food is shown to be part of the expenditure incurred by the manufacturer with bearing on the cost of production calculated on CAS-4 formula.

Summary

Issues:
1. Denial of input service tax credit and imposition of penalty by lower authorities.
2. Admissibility of Cenvat credit for service tax paid on catering service as input service tax credit.

Analysis:

Issue 1: Denial of input service tax credit and penalty imposition
After examining the records and hearing both sides, the Member (J) noted that the lower authorities had denied input service tax credit to the appellants for the period October 2006 to June 2007, amounting to Rs. 1,98,247/-, and imposed a penalty of Rs. 10,000/-. The issue was found to be covered by the Tribunal's Larger Bench decision in a specific case followed by various decisions of different Benches of the Tribunal. The Member (J) decided that the appeal could be finally disposed of at that stage after dispensing with pre-deposit.

Issue 2: Admissibility of Cenvat credit for service tax paid on catering service
The main issue to be decided was whether the Cenvat credit of service tax paid on catering service received by the assessee was admissible as input service tax credit during the relevant period. The learned Commissioner (Appeals) had held against the assessee based on a Tribunal order, which was later appealed to the High Court and remanded back to the Tribunal for reconsideration. It was established that the Cenvat credit for service tax paid on catering service would be available as an input service to a manufacturer with a canteen attached to the factory, where the cost of food formed part of the production cost calculated on a specific formula. However, the lower authorities had not examined this aspect in the present case. Therefore, the Member (J) found it appropriate to remand the case to the original authority for further examination. The authority was directed to ascertain whether the service tax paid on catering service formed part of the cost of production of the final product (motor vehicles) based on a specific formula certified by a competent Cost Accountant. If found that the cost of production included the service tax paid on catering service, such tax would be admissible as input service tax credit, as per the Larger Bench decision cited.

In conclusion, the orders of the lower authorities were set aside, and the appeal was allowed by way of remand for further examination. The Member (J) also noted the status of other related appeals involving similar issues and directed their proceedings accordingly.