2018 (2) TMI 778 - AT - Central Excise

CENVAT credit - whether Cenvat credit have been rightly denied on the transportation expenses of employees/workers engaged, through the manpower service provider? - Held that - the transport charges raised by the service provider for manpower service is related to the transport/conveyance expenses of the workers provided to the appellant manufacturer. Such transport expenses are incidental to providing of manpower service. The transport expenses incurred are nothing but part of the amount paid for manpower service. Accordingly, the appellant is entitled to Cenvat credit for transportation of manpower also being incidental to providing of manpower service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of Cenvat credit on transportation expenses of employees/workers engaged through a manpower service provider.

Analysis:
The appellant, a manufacturer of various parts, entered into an agreement with a Manpower Service Provider for the supply of labor required for manufacturing work. The agreement specified that the service provider would supply different types of labor as needed, and the labor charges would be paid as per mutual consent and in accordance with government regulations. Bills for manpower supply and transportation expenses were raised separately, with the service tax charged accordingly. The contractor was entitled to a commission on both labor disbursement and transportation expenses. A show-cause notice was issued regarding the denial of input service credit related to Rent-A-Cab Service for a specific period.

The appeal was rejected by the Learned Commissioner (Appeals), leading the appellant to approach the Tribunal. The appellant argued that the transport charges were incidental to the manpower service provided by the service provider. They emphasized that separate bills were raised for wages and transport charges for the workers, with the transport expenses being a part of the overall service. The appellant also cited guidance notes from CBEC regarding the classification of services where the main or major service should be considered for classification, not the minor or incidental services.

After considering the arguments, the Tribunal found that the transport charges for manpower service were directly related to the conveyance expenses of the workers provided to the manufacturer. These transport expenses were deemed incidental to the manpower service, making the appellant eligible for Cenvat credit on transportation of manpower. Consequently, the appeal was allowed, and the earlier order disallowing service tax on transport expenses for the supply of manpower was set aside. The appellant was granted consequential benefits as per the law.