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TMI Blog2010 (6) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... , 56-57, 89-90, 305-306, 308, 327 an - 649-661/2010 - Dated:- 18-6-2010 - Dr. Chittaranjan Satapathy, Member (T) Cross Objection No. E/CO/16/2009 Shri T.H. Rao, SDR, for the Appellant. S/Shri M. Khanna, M.N. Bharathi, M. Ravi, M. Ravindran, K.S. Venkatagiri and J. Shankar Raman, Advocates, for the Respondent. [Order]. - Brief Facts : - These 13 cases were heard together as a common issue is involved in all these cases. The respondents in these cases have claimed credit of service tax paid on outdoor catering service claiming the same to be input service used in or in relation to various manufactured excisable goods. The following table showing the list of manufactured excisable goods has been prepared on the basis of submissions made by the learned advocates for the respondents and the learned SDR appearing for the Department. TABLE S. No. Appeal No. Input Service Finished Excisable Goods 01. E/87/2009 and E/CO/16/2009 Outdoor catering Brake lining, clutch facing, disc brake 02. E/88/2009 Outdoor catering Motor vehicle parts 03. E/41/2009 Outdoor catering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 2(l) of the CENVAT Credit Rules, 2004 which defines 'input service' to mean any service, - "(i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, upto the place of removal, and includes services used in relation to setting up, modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal" 3. In all these cases, though the original authorities have denied the credit of service tax paid on outdoor catering service, the lower appellate authorities have allowed such credit in favour of the respondents mainly applying the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m.) = 2009 (242) E.L.T. 168 (Bom.). The Tribunal has also held in this case that the decision of the Hon'ble Supreme Court in Maruti Suzuki (supra) though rendered in a case relating to 'inputs' is also applicable to a case of 'input service' in view of the main part of the definition. (v) In the case of Maruti Suzuki (supra), the Hon'ble Supreme Court lays down the test for eligibility of CENVAT credit, and the same is required to be satisfied by way of establishing the nexus between the inputs or input service on the one hand and finished goods on the other. This is not satisfied in the case of outdoor catering service since the finished goods are motor vehicle parts, paper, cement etc. in these cases. (vi) In the case of Vandana Global Ltd. v. CCE, Raigad - 2010 (253) E.L.T. 440 (Tri. -LB), the Larger Bench of the Tribunal has followed the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki (supra) according to which no credit can be allowed in respect of input or input service unless the same is integrally connected to the manufacture of the finished excisable goods. 5. As an alternative argument, the learned SDR cites the decision of the Mumbai Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood is related to the manufacture of the finished goods. The learned advocates representing other respondents adopt the above arguments and Shri J. Shankar Raman, learned counsel additionally states that as per Circular No. 120/01/2010-S.T., dated 19-1-2010 issued by the Board, outdoor catering service is one of the input services. Legal Provisions 9. The CENVAT Credit Rules, 2004 have been made by the Central Govt. in exercise of the powers conferred by Section 37 of the Central Excise Act, 1944 and Section 94 of the Finance Act, 1994. The enabling provisions under Section 37(2) allow the Central Govt. to make rules, inter alia, for the following :- "(xvia) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to the manufacture of excisable goods" "(xviaa) provide for the credit of service tax leviable under Chapter V of the Finance Act, 1994 (32 of 1994) paid or payable on taxable services used in, or in relation to, the manufacture of excisable goods" From the above statutory provisions, it is seen that the Central Govt. has the power to make rules to provide for credit of (i) duty paid on goods and (ii) service tax paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd holiday payment (vii) Leave encashment (viii) Other allowances such as children's education allowance, conveyance allowance which are payable to employees in the normal course of business etc.' "The above paras of CAS-4 clearly show that cost of subsidised food is included in the cost of production. We further note that in case of a factory having more than 250 workers under Section 46 of the Factories Act, 1948, it is mandatory on the part of the factories to provide a canteen facility within the factory premises and failure to comply with the provisions of Section 46 attracts prosecution and penalty under Section 92 of the Factories Act, 1948. A service tax on outdoor catering services is paid by the manufacturer for running the canteen, irrespective of the fact that a subsidised food is provided or not. Whether the cost of food is borne by the worker or by the factory, the same will form part of expenditure incurred by the manufacturer and will have a bearing on the cost of production. In view of the same, employment of outdoor caterer for providing catering services has to be considered as an input service relating to the business and CENVAT credit in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitle the manufacturer to take credit" The Hon'ble Supreme Court has specifically ruled that mere inclusion of value in the assessable value of the final product will not entitle a manufacturer to take credit. The ratio of this decision of the Hon'ble Supreme Court rendered in the context of the very same Cenvat Credit Rules, 2004 though in the context of input duty credit is very much applicable to cases of credit of tax on input service. Unless, the other tests laid down by the Hon'ble Supreme Court in the context of the expression 'used in or in relation to the manufacture' are satisfied, mere inclusion of the value in the assessable value would not suffice. 15. It is also seen that this ratio of the Hon'ble Supreme Court's decision in Maruti Suzuki (supra) has been specifically relied on by another Larger Bench of the Tribunal in the case of Vandana Global (supra) in paragraph 48 thereof. In the said case, an argument was advanced on behalf of the assessees that since the value of cement and steel items used for laying foundation and building structural support contributes to the value of the final product, the credit of duty paid on the same should be allowed. Such a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment's case is that when biscuits are not inputs for motor vehicle part, paper or cement, the service tax paid for supply of biscuits cannot be allowed for paying duty on the motor vehicle parts, paper or cement. I have chosen the real life example of biscuits to illustrate the point that supply of biscuits to the workers engaged in the manufacture of motor vehicle parts, paper or cement cannot be considered as an input service by any stretch of imagination unless the biscuits eaten by the workers can be said to be integrally connected to the manufacture of the finished goods like motor vehicle parts, paper or cement. Moreover, the example also illustrates that eligibility of credit in respect of any particular input or input service has to be examined not in a general way but only with reference to the particular finished excisable goods and the manufacturing process involved. 19. It has been held by the Tribunal in the case of KBACE Tech Pvt. Ltd. v. Commissioner of Central Excise Service Tax, Bangalore - 2010 (18) S.T.R. 281 in the context of interpreting the Cenvat Credit Rules, 2004 that the rule making authority can frame rules covering lesser area than what it is empow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly connected with the manufacture of the final product. The input service must have nexus with the process of manufacture. It has to be necessarily established that the input service is used in or in relation to the manufacture of the final product. One of the relevant test would be can the final product emerge without the use of the input service in question. When these tests are applied following the decision of the Hon'ble Supreme Court in Maruti Suzuki (supra), one finds that the impugned outdoor catering service does not meet the same in relation to the manufacture of the finished excisable goods listed in the Table in paragraph 2. 20. The learned Advocate appearing for respondents in appeals at Sl. No. 9 and 10 refers to Board's Circular dated 19-1-2010. This circular has been considered in the cited decision of the Tribunal in the case of KBACE Tech (supra) and it was held therein that the circular does not have the effect of amending the statute. Moreover, the same was issued in the context of refund of service tax paid on input service used for providing output service. Hence, the same is not relevant to these cases where the issue is relating to input service used in or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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