2015 (8) TMI 158 - HC - Service Tax

Cenvat Credit - input services - outdoor catering service - canteen services, providied in the factory - Held that - The Bombay High Court came to the conclusion that the decision of the Larger Bench of the CESTAT in the case of CCE V. GTC Industries Ltd. 2008 (9) TMI 56 - CESTAT MUMBAI is a correct law, however, with a rider that where the cost of the food is borne by the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. - various High Courts have concurred with the above-said principle of the Bombay High Court and followed the above-said decision. - herefore, the issue that the Cenvat Credit can be properly availed by the assessee in respect of outdoor catering services is clearly settled now. - Decided against the revenue.

Summary

Issues Involved:
1. Whether canteen services provided in the factory through outdoor caterers qualify as "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004.
2. Whether the cenvat credit of the service tax paid for outdoor catering services is eligible for availment and utilization under Rule 3 read with Rule 2(l).
3. Whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was correct in relying on the decision of the Larger Bench in CCE, Mumbai vs. GTC Industries Limited without specific findings on its applicability to the present case.

Detailed Analysis:

Issue 1: Qualification of Canteen Services as "Input Service"
The core issue revolves around whether canteen services provided in the factory through outdoor caterers can be considered "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004. The court referred to the Bombay High Court's decision in CCE vs. Ultratech Cement Ltd., which concluded that the definition of "input service" is broad and includes services used directly or indirectly in or in relation to the manufacture of final products as well as services related to the business of manufacturing. The court highlighted that the definition covers services used prior to, during, or after the manufacture of final products, thereby encompassing a wide range of services integral to business activities.

The court noted that the expression "activities in relation to business" implies activities integrally connected with the business of the assessee. Since the Factories Act, 1948 mandates the provision of canteen facilities for workers, the use of outdoor catering services to comply with this statutory requirement is integrally connected with the business of manufacturing. Therefore, the court held that outdoor catering services qualify as "input service."

Issue 2: Eligibility for Cenvat Credit
The court examined whether the cenvat credit of the service tax paid for outdoor catering services is eligible for availment and utilization under Rule 3 read with Rule 2(l). It referred to the decision in the Maruti Suzuki Ltd. case, which emphasized that the definition of "input service" includes services that have a nexus or integral connection with the business of manufacturing the final product.

The court reiterated that the definition of "input service" is not restricted to services used directly in the manufacture of final products but extends to services used in relation to the business of manufacturing. Since the provision of canteen services is a statutory obligation under the Factories Act, the use of outdoor catering services has a direct nexus with the business of manufacturing. Consequently, the cenvat credit of the service tax paid for such services is eligible for availment and utilization.

Issue 3: Tribunal's Reliance on Larger Bench Decision
The court addressed whether the CESTAT was correct in relying on the Larger Bench decision in CCE, Mumbai vs. GTC Industries Limited without specific findings on its applicability to the present case. The Tribunal had allowed the appeal by following the Larger Bench decision, which held that outdoor catering services provided in compliance with statutory requirements qualify for cenvat credit.

The court noted that various High Courts have concurred with the principle established by the Bombay High Court in Ultratech Cement Ltd., affirming that services integrally connected with the business of manufacturing are eligible for cenvat credit. The court concluded that the issue of cenvat credit for outdoor catering services is now settled law, and the Tribunal's reliance on the Larger Bench decision was appropriate.

Conclusion:
The court dismissed the appeal, confirming the Tribunal's order and holding that:
1. Outdoor catering services provided in compliance with statutory requirements qualify as "input service."
2. The cenvat credit of the service tax paid for such services is eligible for availment and utilization.
3. The Tribunal correctly relied on the Larger Bench decision in CCE, Mumbai vs. GTC Industries Limited.

The appeal was dismissed, and the issue was resolved in favor of the assessee, with no costs awarded.