2013 (4) TMI 328 - AT - Central Excise

Disallowance of cenvat credit proportionate to the amount recovered from the employees/ workers of the appellant - Held that - As decided in the case of Ultratech Cement Limited 2010 (10) TMI 13 - BOMBAY HIGH COURT that once proportionate service tax is borne by the ultimate consumer of the service, namely the worker/ beneficiary, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. Thus proportionate credit, to the extent it is embedded in the cost of food recovered from the employee/ beneficiary, is not admissible to the appellant. It has been rightly held by Commissioner (Appeals) in his findings that no evidence has been produced by the appellant to the effect that service tax element embedded in the payment received from the employees is not recovered from the employees/ beneficiary. Like a concept of unjust enrichment for refunds under Section 11B of the Central Excise Act, 1944, the onus is on the appellant to establish with documentary evidence that the element of service tax paid by the appellant is not recovered from the beneficiary/ employees of the appellant. On merits, therefore, the case goes against the appellant and in favour of the Revenue. Application of limitation under Section 11A of the Central Excise Act, 1944 - Whether limitation will be applicable when the credit improperly taken has been noticed during the course of second audit - Held that - The judgment MTR Foods Limited (2012 (10) TMI 165 - KARNATAKA HIGH COURT) & Kay Kay Press Metal Corporation vs. CCE Valsad 2011 (5) TMI 768 - CESTAT, AHMEDABAD as relied upon by assessee are distinguishable on facts as in the present case no separate data were given by the appellant to the department in the monthly returns & the fact that certain amounts were recovered from the beneficiaries/ workers by the appellants, was suppressed from the department and the same came to the knowledge of the department only through an audit - against assessee.

Summary

Issues involved:
1. Admissibility of credit of service tax in case of outdoor catering service.
2. Applicability of limitation under Section 11A of the Central Excise Act when credit improperly taken is detected during the second audit.

Analysis:

Issue 1: Admissibility of credit of service tax in case of outdoor catering service

The appellant contended that as per the Factories Act and Gujarat Factories Rules, no service tax element was recovered from the employees for the food supplied in the canteen. They relied on the Larger Bench decision of the Tribunal in a specific case. However, the respondent argued that the service tax proportionate to the amount recovered from employees must be reversed. The Hon'ble High Court of Mumbai held that if the service tax is borne by the ultimate consumer, the manufacturer cannot claim credit for that part. In this case, the appellant failed to prove that the service tax element was not recovered from the employees. The onus was on the appellant to establish this with documentary evidence, similar to the concept of unjust enrichment for refunds under the Central Excise Act. Consequently, the judgment favored the Revenue, and the appeal was rejected.

Issue 2: Applicability of limitation under Section 11A of the Central Excise Act

The appellant cited judgments related to the limitation period for detection of improperly taken credit during the second audit. However, the appellant did not provide documentary evidence indicating the amounts recovered from employees in the monthly returns filed with the department. This lack of evidence distinguished the present case from the cases relied upon by the appellant. The judgment in the case of MTR Foods Limited was found to be inapplicable due to the differing factual circumstances. Additionally, the judgment in the case of Kay Kay Press Metal Corporation was deemed irrelevant because the appellant had suppressed the fact of recovery from employees, which was only discovered during an audit. Therefore, the order in appeal was upheld based on these observations, and the appeal was rejected.

In conclusion, the judgment highlighted the importance of providing documentary evidence to support claims related to service tax credit and emphasized the significance of timely disclosure to tax authorities to avoid adverse outcomes.