2011 (4) TMI 201 - HC - Service Tax

Cenvat credit - outdoor catering services, transportation charges, rent-a-cab scheme and Group Health Insurance - Scrutiny - Rule 14 of the Cenvat Credit Rules, 2004 - As is clear from the definition any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products constitutes input service - If the credit is availed by the manufacturer, then the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business - merely because these services are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and the assessee is not entitled to the benefit of CENVAT credit - Rule 3 of the Cenvat Credit Rules, 2004, specifically provides that the manufacturer of final products shall be allowed to take credit, the service tax leviable under section 66 of the Finance Act and paid on any input service received by the manufacturer of a final product - Decided in favour of the assessee

Summary

Issues:
1. Entitlement to Cenvat credit on service tax paid on outdoor catering services, transportation charges, rent-a-cab scheme, and Group Health Insurance.

Analysis:
The appeals by the revenue challenge the Tribunal's order granting the assessees Cenvat credit on service tax paid for various services used in manufacturing motor vehicle parts. The revenue alleged wrongful availment of input service credit on outdoor catering, Rent-a-Cab Service, and Group Health Insurance. The assessing authority, despite the assessee's contention that these services were used in manufacturing activities, ruled against them. The Commissioner of Appeals upheld this decision, leading the assessee to appeal to the Tribunal.

The Tribunal, citing a previous judgment and the definition of input service, held that Rent-a-Cab service, outdoor catering services, and Group Health Insurance were indirectly related to manufacturing activities or business promotion. It reasoned that these services contribute to business efficiency and are part of the manufacturing process, thus entitling the assessee to Cenvat credit. The revenue appealed this decision.

In the subsequent legal arguments, the revenue contended that the services in question were welfare measures for employees and not directly related to manufacturing activities. Conversely, the assessee's counsel argued that these services fell within the definition of input service as they were used indirectly in manufacturing or business activities. The appeals were admitted to address specific legal questions related to the definition of input service and the eligibility of Cenvat credit for the services in question.

The definition of input service under Rule 2(l) includes services used directly or indirectly in manufacturing final products. The test for availing Cenvat credit is whether the service is used in manufacturing or business activities. The definition is inclusive, covering various services related to business operations. The judgment also references CAS-4 Standards detailing cost elements, including subsidized food and transportation allowances for employees.

Detailed Analysis by Issue:
1. Canteen Service: The provision of outdoor canteen facilities by the assessee, mandated by the Factories Act, is considered a condition of service for employees and is included in the cost of production. While a welfare measure, it is not charity but a legal obligation impacting the final product's pricing.

2. Rent-A-Cab Service/Transportation: Rent-a-Cab service for employees to reach the factory premises on time is crucial for manufacturing activities and is part of the conditions of service. It directly affects the final product's pricing and is an essential business-related activity.

3. Insurance/Health Policy: The Group Health Insurance Policy, although a welfare measure, is a statutory obligation for employers to ensure employee well-being. Under various Acts, employers are mandated to provide insurance coverage, making it an activity related to business and manufacturing.

In conclusion, the Tribunal's decision to grant Cenvat credit for these services was upheld as they indirectly contributed to manufacturing activities or business operations, aligning with the inclusive definition of input service. The judgment emphasizes that even if services are not expressly listed, if they are used in manufacturing or business activities, Cenvat credit is permissible under the Cenvat Credit Rules, 2004.