2012 (10) TMI 624 - AT - Central Excise

Cenvat credit of service tax paid on outdoor catering Held that - Since the number of workers in the Appellant s factory is admittedly less than 250 and there is no statutory requirement of providing canteen facility to workers, there is also a question to be considered as to whether this activity is a welfare activity, in which case, it would not be eligible for Cenvat credit or this activity is essential for increasing the productivity of the workers which would depend on the location of the factory, the number of shifts in which it works etc. - appellant directed to deposit 50 per cent of the Cenvat credit demand

Summary

Issues:
- Eligibility for Cenvat credit on service tax paid for outdoor catering facility for canteen
- Consideration of canteen facility as essential for improving worker efficiency
- Dispute on recovery of canteen facility costs from workers
- Statutory requirement for providing canteen facility to workers
- Classification of canteen facility as a welfare activity or essential for productivity
- Application of limitation period for recovery of allegedly wrongly availed credit

The judgment addressed the issue of whether the appellant, a manufacturer of filter and filter paper, was eligible for Cenvat credit on service tax paid for an outdoor catering facility used to provide canteen services to workers. The appellant contended that the canteen facility was essential for enhancing worker efficiency, citing a Tribunal judgment and a Board's circular supporting the inclusion of canteen services as "input service." The department, however, disallowed the credit, emphasizing the recovery of canteen costs from workers and the absence of a statutory requirement for providing canteen services due to the factory having less than 250 workers. The department imposed a demand for Cenvat credit, interest, and penalty, which was upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal.

The appellant argued that the recovery of costs from workers did not negate their eligibility for Cenvat credit, emphasizing the importance of canteen services for worker efficiency. The departmental representative opposed the appeal, highlighting that the recovery of costs from workers was evident from salary slips, and contended that the absence of a statutory requirement rendered the canteen facility a welfare activity, not eligible for Cenvat credit. The department invoked a longer limitation period for recovery due to the appellant's non-disclosure of availed credit.

The Tribunal considered both arguments, acknowledging the importance of canteen services for worker efficiency but noting the recovery of costs from workers as a factor affecting Cenvat credit eligibility. The Tribunal raised the question of whether the canteen facility should be classified as a welfare activity or essential for productivity based on factory location and working shifts, requiring further examination during the final hearing. The issue of limitation was deemed a mixed question of fact to be addressed at the final hearing.

Ultimately, the Tribunal directed the appellant to deposit 50% of the Cenvat credit demand within four weeks, with the remaining amount, interest, and penalty waived pending appeal disposal. The decision balanced the considerations of worker efficiency, cost recovery, statutory requirements, and the classification of canteen services to determine the eligibility for Cenvat credit, pending further examination during the final hearing.