2010 (4) TMI 649 - HC - Service Tax

Cenvat credit of service tax input service - canteen services to the staff - Provision of canteen services being indispensable, it is incumbent on a manufacturer of goods, to provide the same if he desires to run his factory - canteen services which are indispensable in relation to manufacture of the final products would certainly fall within the ambit of input service - Tribunal was justified in holding that the service tax paid on outdoor catering services by the canteen located in the respondent s manufacturing premises has to be considered as an input service relating to business and that CENVAT credit is admissible, sustainable

Summary

Issues:
1. Whether canteen services provided in the factory can be considered as an input service under the CENVAT Credit Rules, 2004?
2. Whether the CENVAT credit of service tax paid for outdoor caterer's services by the factory canteen is eligible for availment and utilization under the Rules?

Analysis:

Issue 1:
The appellant-revenue challenged the Tribunal's order regarding the eligibility of canteen services as an input service under the CENVAT Credit Rules, 2004. The respondent, a manufacturer of Injection Moulding Machines, availed CENVAT credit on service tax for canteen services, leading to a show-cause notice for recovery. The appellant contended that canteen services do not qualify as "input services" under the Rules, as they lack a direct or indirect nexus to the manufacture of goods. The main argument was that the inclusive part of the definition of input services should not extend beyond the main definition. However, the Tribunal held that canteen services, being a statutory requirement under the Factories Act, are indispensable for manufacturing activities and thus fall within the definition of "input service."

Issue 2:
Rule 3 of the CENVAT Credit Rules, 2004 allows manufacturers to take credit of service tax paid on any input service received after a specified date. In this case, the respondent provided canteen services to comply with statutory requirements, which were essential for carrying out manufacturing activities. The Tribunal found that the service tax paid on outdoor catering services by the factory canteen qualifies as an input service related to business, making CENVAT credit admissible. The Tribunal's decision was based on the fact that Rule 3 does not impose restrictions on the nature of input services availed by the manufacturer. Consequently, the Tribunal's decision was upheld as legally sound and in accordance with the Rules, leading to the dismissal of the appeal without any substantial question of law for consideration.