2019 (6) TMI 1203 - AT - Central Excise

CENVAT Credit - input services - Outdoor Catering Services - period post 01.04.2011, when amendment in the definition of input services was carried out - situation post introduction of negative list regime after 01.07.2012 - authorities below have disallowed the credit availed on Outdoor Catering Services stating the reason that these services are for personal consumption and excluded as per the definition of input service . HELD THAT - In the present case, the disputed period is entirely after 01.07.2012. The definition of input service underwent an amendment with effect from 01.04.2011, which has already been reproduced in the contentions of the appellant as above. In Clause (A) of the said exclusions, it does not mention Sub-Clause (zzt) which is for taxable services provided under Outdoor Catering Services. The Ld. Counsels are correct in their assertion that the specific exclusion contained in Clause (A) does not take within its ambit the Outdoor Catering Services - However, the exclusion is brought forth in Clause (C) wherein it is stated that services provided in relation to outdoor catering are excluded when such services are used primarily for personal use or consumption of any employee. In the case of M/s. Wipro Ltd. 2018 (4) TMI 149 - CESTAT BANGALORE , the Larger Bench took the view that after 01.04.2011, Outdoor Catering Services were excluded from the definition of input services - Though I am persuaded by the arguments that food supply services to a factory under the Factories Act cannot be considered as services for personal consumption of employees, I am bound by the decision of the Larger Bench of the Tribunal in the case of M/s. Wipro Ltd. - credit is ineligible Penalties - HELD THAT - The situation being interpretational one, the penalties imposed are unwarranted - penalties set aside. The impugned orders are modified to the extent of setting aside the penalties imposed without disturbing the demand or interest thereon - appeal allowed in part.

Summary

Issues Involved:
1. Eligibility of credit on Outdoor Catering Services post 01.04.2011.

Detailed Analysis:

1. Eligibility of Credit on Outdoor Catering Services Post 01.04.2011:
The primary issue in this case is whether credit is eligible on Outdoor Catering Services after the amendment to the definition of 'input service' effective from 01.04.2011. The appellants argued that the service of preparation and supply of food in factory canteens is mandated by the Factories Act and should not be considered as for personal consumption of employees. They contended that the exclusion of Outdoor Catering Services in the definition of 'input service' was intended for services used for special events and not for statutory compliance.

The amended definition of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, effective from 01.04.2011, excludes services related to outdoor catering when used primarily for personal use or consumption of any employee. The authorities below disallowed the credit on the grounds that these services are for personal consumption.

The appellants emphasized that the services provided by contractors in factory canteens are not for personal use but for statutory compliance, making them eligible for credit. They argued that the exclusion clause should only apply to services used primarily for personal use, and not to services mandated by law.

The Tribunal acknowledged the appellants' arguments but noted that a Larger Bench in the case of M/s. Wipro Ltd. had held that canteen services are for personal consumption of employees, thereby excluding them from credit eligibility. This decision was based on the interpretation of the exclusion clause in the definition of 'input service'.

The Tribunal further noted that the definition of 'input service' underwent another change after 01.07.2012, with the introduction of the negative list regime. However, the CENVAT Credit Rules were not amended in line with this change to remove the exclusion of outdoor catering services.

The Tribunal concluded that despite the appellants' arguments and the statutory mandate under the Factories Act, the decision of the Larger Bench in M/s. Wipro Ltd. prevails. Therefore, the credit on Outdoor Catering Services post 01.04.2011 is ineligible.

Separate Judgments:
The Tribunal also addressed the issue of penalties imposed on the appellants. It found that the situation was interpretational and had been referred to the Larger Bench, indicating complexity and lack of clarity in the law. Consequently, the Tribunal set aside the penalties imposed on the appellants while maintaining the demand and interest.

Conclusion:
The Tribunal held that credit on Outdoor Catering Services post 01.04.2011 is ineligible based on the exclusion clause in the definition of 'input service' and the decision of the Larger Bench in M/s. Wipro Ltd. However, penalties imposed on the appellants were set aside due to the interpretational nature of the issue. The appeals were partly allowed to the extent of setting aside the penalties.