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CX – Post 1.4.2011, CENVAT credit on Outdoor catering service is not admissible even if services are provided in compliance with statutory requirement: CESTAT

2019-TIOL-2479-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAXAPPELLATE TRIBUNAL
REGIONAL BENCH, CHENNAI

COURT NO. III

Excise Appeal No. 41920 of 2018

Arising out of Order-in-Appeal No.243 to 247/2017, Dated: 29.09.2017
Passed by the Commissioner of GST & Central Excise (Appeals) Coimbatore

WITH
(i) Excise Appeal No. 41921 of 2018 (M/s. ITC Ltd.)
(ii) Excise Appeal No. 41923 of 2018 (M/s. ITC Ltd.)
(iii) Excise Appeal No. 41924 of 2018 (M/s. ITC Ltd.)
(iv) Excise Appeal No. 41925 of 2018 (M/s. ITC Ltd.)

Arising out of Order-in-Appeal No.243 to 247/2017, Dated: 29.09.2017
Passed by the Commissioner of GST & Central Excise (Appeals) Coimbatore

Date of Hearing: 01.07.2019
Date of Decision: 01.07.2019

M/s ITC LTD
PSPD DIVISION VIVEKANANDAPURAM THEKKAMPATTY VILLAGE
METTUPALAYAM – 641113

Vs

COMMISSIONER OF GST AND CENTRAL EXCISE
6/7, A.T.D. STREET, RACE COURSE ROAD, COIMBATORE-641018

Appellant Rep by: Ms L Mythili, Adv.
Respondent Rep by: Shri L Nanda Kumar, AC (AR)

CORAM: Sulekha Beevi C S, Member (J)

CX – Input Service – Rule 2(l) of CCR, 2004 – Whether appellants are eligible for credit on outdoor catering services availed prior to 1.4.2011 as well as after the said date.Held: Exclusion part (C) of the definition of ‘input service’ after 1.4.2011 states that when outdoor catering services are availed for personal use and consumption of an employee, the same does not qualify as ‘input service’ and, therefore, not eligible for credit – the decision of Larger Bench of the Tribunal in the case of Wipro Ltd. – 2018-TIOL-3256-CESTAT-BANG-LB has answered the specific issue as to whether credit is eligible on outdoor catering services post 1.4.2011 and held that it is not eligible even if availed in compliance with statutory requirement – by judicial discipline, respectfully following the Tribunal’s Larger Bench decision in Wipro Ltd., which is on the specific point, the Bench is of the view that credit is not eligible – the demand along with interest in respect of outdoor catering services post 1.4.2011 is, therefore, upheld – the credit in respect of employer’s contribution for the period prior to 1.4.2011 is eligible – regarding penalties imposed, being an interpretational issue, penalty imposed prior to 1.4.2011 as well as post 1.4.2011 is unwarranted and requires to be set aside, and is set aside – the impugned orders are set aside to the extent of setting aside the penalties imposed entirely without disturbing the demand along with interest for the period after 1.4.2011 – the appeals are partly allowed on above terms : CESTAT [para 7, 9, 10, 11, 12]

Appeals partly allowed

Case laws cited:Ganesan Builders Ltd. Vs CST Chennai – 2018-TIOL-2303-HC-MAD-ST… Para 3.3

Rane TRW Steering System Ltd. – 2018-TIOL-414-HC-MAD-CX… Para 3.3

CCE Udaipur Vs Mangalam Cement Ltd. – 2018 (9) G.S.T.L. 17 (Raj.)… Para 3.3

CEAT Ltd. Vs CCE & CC Nasik – 2015-TIOL-397-HC-MUM-CX… Para 3.4

Wipro Ltd. Vs CCE Bangalore – III – 2018-TIOL-3256-CESTAT-BANG-LB… Para 4.4

FINAL ORDER NOS. 40887-40891/2019

Per: Sulekha Beevi:

The issue that arises for consideration in all these appeals being same they are disposed together by this common order.

2. The issue is whether appellants are eligible for credit on outdoor catering services availed prior to 01.04.2011 as well as after the said date. The details of show cause notice, demand etc. as furnished by the Ld. advocate is reproduced as under :

S.NO.SCN NO.Original Demand proposed In Rs.Demand accepted on Employees contribution and Reversed along with interest In Rs.OIO No. and demand confirmedOIA – Impugned order
1.02/2009 Dated 20.01.2009 (Pg.No.167)3,41,491/-68,298/-19/2016 dated 20.10.2016Credit of Rs.68,298/- disallowed : Penalty Dropped(Pg.no.45)Recovery of credit and interest upheld. (Pg.no.33) Penalty of Rs.68,298/- under Rule 15 (1) of CCR, 2004 imposed
2.13/2009 dated 23.10.2009 (Pg.No.160)4,27,673/-85,435/-20/2016 dated 20.10.2016Credit of Rs.85,435/- disallowed : Penalty Dropped (Pg.no.45)Recovery of credit and interest upheld. (Pg.no.33) Penalty of Rs.85,435/- under Rule 15 (1) of CCR, 2004 imposed
3.14/2010 dated 30.07.2010 (Pg.No.154)2,76,691/-55,338/-21/2016 dated 20.10.2016Credit of Rs.55,338/- disallowed : Penalty Rs.55,338/- (Pg.no.45)Recovery of credit and interest upheld. Penalty of Rs.55,338/- under Rule 15 (1) of CCR, 2004 Upheld (Pg.no.33)
4.4/2011 dated 15.02.2011 (Pg.No.148)1,22,815/-24,563/-22/2016 dated 20.10.2016 Credit of Rs.24,563/- disallowed : Penalty Rs.24,563/- (Pg.no.46)Recovery of credit and interest upheld. Penalty of Rs.24,563/- under Rule 15 (1) of CCR, 2004 Upheld (Pg.no.33)
5.1/2012 dated 18.01.2012 (Pg.No.142)3,40,677/-68,135/-23/2016 dated 20.10.2016 Credit of Rs.68,135/- disallowed : Penalty Rs.68,135/- (Pg.no.46)OIO to the extent of ordering recovery of reversed amount of credit of Rs.68,135/- and equivalent penalty, upheld for the period January 2011 to March 2011. For the period 1.4.2011 to 30.09.2011 entire credit disallowed and matter remanded for re-quantification by the lower authority. Equivalent Penalty of entire disallowed credit for 1.4.2011 to 30.09.2011 as determined on re-quantification imposed. (Pg.No.33)
6.14/2012 dated 09.11.2012 (Pg.No.136)90,382/-13,708/-24/2016 dated 20.10.2016 Penalty Rs.13,708/- (Pg.No.47)Entire credit of Rs.90,380/- directed to be recovered along with interest and equivalent Penalty of Rs.90,380/- (Pg.No.33)
Total 16,05,729/-3,15,577/-3,15,577/-Not quantified

3.1 The ld. Counsel for appellants Ms.L.Mythili submitted that for the period prior to 01.04.2011, the appellant has already reversed employee’s contribution and is contesting only the penalty imposed. Her arguments were mainly in respect of demand, interest and penalty confirmed for the period after 01.04.2011. She referred to the definition of “input service” for the period after 01.04.2011 and submitted that outdoor catering services are excluded from the definition of ‘input services’ only when they are for personal use and consumption of employee. Thus, when outdoor catering services are used by the employer for compliance of provisions of Factories Act, the services are not for personal use of employee and is therefore eligible for credit.

3.2 As per clause (A) of the exclusion part of definition of ‘input services’ certain services mentioned therein are completely excluded from the eligibility of credit. Outdoor catering services does not fall in clause (A) but is mentioned in clause (C) only. If outdoor catering services are to be totally excluded, then it would have the effect of making such services fall within the category of services specified in clause (A) of the exclusion part of the definition. The intention of the legislature was only to disallow credit in respect of outdoor catering services used for personal consumption of the employees. As per the Factories Act, 1946, the employer is duty bound to provide canteen facilities in the factory premises. Such service is provided by the appellant for compliance of statutory regulations in order to carry out activity of manufacture. Further, these services are provided on day to day basis to the employees. It is not provided for a particular event of birthday or anniversary held in the factory. Thus, when outdoor catering services are provided by the manufacturer as per the Factories Act, it does not assume the character of personal use or consumption of an employee.

3.3 She relied upon the decision of jurisdictional High Court in Ganesan Builders Ltd. Vs CST Chennai – 2019 (20) G.S.T.L. 39 (Mad.) = 2018-TIOL-2303-HC-MAD-ST to argue that when services are provided in compliance of a statute, the credit is eligible. In the said decision though general insurance services are mentioned as excluded in clause (C) the Hon’ble High Court held that insurance services availed under Workmen Compensation Act, would not fall within the exclusion clause (C) of the definition. Such insurance services being availed by the manufacturer on compliance of statutory requirement was held to be eligible for credit. Similar view was taken in Rane TRW Steering System Ltd. – 2018 (2) TMI 1745 = 2018-TIOL-414-HC-MAD-CX-Madras High Court wherein it was held that gardening service availed by the assessee in compliance with statutory requirements of Pollution Control Board is eligible for credit even after the period 01.04.2011. The decision of the High Court in the case of CCE Udaipur Vs Mangalam Cement Ltd. – 2018 (9) G.S.T.L. 17 (Raj.) was taken assistance by the Ld. Counsel to argue that the Hon’ble High Court in the said decision has held that outdoor catering service is eligible for credit for the period post-01.04.2011 also. The said judgment has been upheld by the Hon’ble Supreme Court as reported in 2018 (16) G.S.T.L. J168 (SC).

3.4 She relied upon the decision in the case of CEAT Ltd. Vs CCE & CC Nasik – 2015 (317) ELT 192 (Bom.) =2015-TIOL-397-HC-MUM-CX to argue that when the issue is covered by the judgement of the High Court, the decision of the Tribunal’s Larger Bench would not apply.

3.5 Ld. Counsel also argued with respect to penalties imposed. She submitted that the issue is interpretational one and the appellants had availed credit only on bonafide belief that it is eligible. There was no intention to evade tax. She prayed that the penalties may be set aside.

4.1 Ld. A.R Shri L. Nandakumar supported the findings in the impugned order.

4.2 He submitted that from a bare reading of clause (C) of the definition of ‘input service’, it is very clear that outdoor catering services are not eligible for credit. The provisions of law have to be interpreted literally and when the said services have been mentioned in the exclusion clause, the credit is not eligible.

4.3 With regard to the decision relied by Ld. Counsel for appellants in Mangalam Cement Ltd. (supra), Ld. A.R adverted to para 5.2 of the said judgement and submitted that the main ground that was analyzed in the said judgement is whether input services which are availed outside the premises of the factory is eligible for credit. Though the period involved shown in para-1 is from April 2010 to September 2011, the issue whether credit is eligible for outdoor catering services for the period post-01.04.2011 when availed for the personal use and consumption of employees was not discussed. When the employer provides food to the employees, it is definitely for personal use of the employees and therefore is not eligible for credit.

4.4 With regard to decision in Ganesan Builders (supra) as well as Rane TRW Steering System (supra), Ld. A.R submitted that said decisions are with regard to services other than outdoor catering services. When outdoor catering services are specifically mentioned in clause (C) of exclusion part of the definition, the credit is not eligible and has been rightly disallowed by the authorities below. He emphasized on the decision of the Larger Bench of Tribunal in the case of Wipro Ltd. Vs CCE Bangalore – III 2018 (363) ELT 1111 (Tri.-LB) = 2018-TIOL-3256-CESTAT-BANG-LB.

5. Heard both sides.

6. The main issue that arises for consideration is whether the appellants are eligible for credit of the service tax paid on outdoor catering services w.e.f. 01.04.2011. The definition of ‘input service’ after 01.04.2011 reads as under :

“(1) “input service ” means any service, –

(i) used by a provider of taxable service for providing an output service; or

(ii) used by a 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 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services,-

(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for – (a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or

(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;”

7. The exclusion part (C) of the definition categorically states that when outdoor catering services are availed for personal use and consumption of an employee, the same does not qualify as ‘input service’ and therefore not eligible for credit. The Larger Bench of the Tribunal in the case Wipro Ltd. (supra) had analyzed the point as to whether credit is eligible on outdoor catering services, if availed by the manufacturer in compliance of the Factories Act, 1946. The Larger Bench of the Tribunal answered the reference in favour of Revenue.

8. The decision in the case of Mangalam Cement Ltd. (supra) is a judgement arising out of an appeal filed by department. In the said case, the Department had mainly contested that when input services are availed outside the factory premises, such service will not be eligible for credit. Though the period involved therein is April 2010 to September 2011, the specific issue as to whether credit is eligible on ‘outdoor catering services’ for the period post-01.04.2011 when availed as per Factories Act, 1946 has not been analyzed in the said decision. In para 5.1, the Hon’ble High Court has noted the decision of the Tribunal wherein it was held that in view of changed legal position the outdoor catering services did not fall under the definition of ‘input service’. Thus, the judgment does not reflect any discussion with regard to specific issue as to whether outdoor catering service is eligible for credit after 01.04.2011, when availed as per statutory compliance.

9. The decisions in the case of Ganesan Builders (supra) and Rane TRW Steering System (supra) rendered by Hon’ble jurisdictional High Court deal with services other than outdoor catering services. The decision of Larger Bench of the Tribunal in Wipro Ltd. (supra) has answered the specific issue as to whether credit is eligible on outdoor catering services for post-01.04.2011 and held that it is not eligible even if availed in compliance with statutory requirement. This Bench vide Final Order No.40858-40864/2019 dt. 24.06.2019 in a batch of cases had considered various arguments put forward by the assessees and thereafter following the decision in Wipro Ltd. (supra) by the Larger Bench (Tri.) held that credit is not eligible. By judicial discipline, respectfully following the Tribunal’s Larger Bench in Wipro Ltd. (supra), which is on the specific point, I am of the view that credit is not eligible. The demand along with interest in respect of outdoor catering services post-01.04.2011 is therefore upheld. The credit in respect of employer’s contribution for the period prior to 01.04.2011 is eligible. The appellant has already reversed the credit availed in respect of employees’ contribution, and has not contested the same.

10. Regarding penalties imposed, being an interpretational issue as seen from the discussions supra, I am of the view that penalty imposed prior to 01.04.2011 as well as post-01.04.2011 is unwarranted and requires to be set aside, which I hereby do so.

11. The impugned orders are set aside to the extent of setting aside the penalties imposed entirely without disturbing the demand along with interest for the period after-01.04.2011.

12. The appeals are partly allowed on above terms.

(Dictated and pronounced in open court)

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