Fact of the case: The appellant herein is an industrial unit having a manufacturing / service provider unit. They engaged the services of outdoor catering service for providing the catering services to their employees. Such service provider raised the bill along with service tax of which they availed the CENVAT credit. Department is of the view that such CENVAT Credit cannot be availed after the provisions of Rule 2(1) of CENVAT Credit Rules, 2004 were amended restricting availment of CENVAT credit in respect of “outdoor catering service”.
Appellant contention: The appellant contended that, the definition of ‘input service’ continues to stipulate that it means any service used by a manufacturer whether directly or indirectly, in or in relation to the manufacture of final products and includes a wide variety of services. The substituted definition by retaining the means part, as well as the continued use of the words “directly or indirectly” and “in or in relation to” which are words of width and amplitude as well as the use of the words “includes” is only illustrative and not exhaustive. It further contended that, service is used by the appellant for compliance of the statutory requirement placed on it and the employees are required to work in the factory and need to have sufficient source of energy for the same to be productively engaged, the use of such service by the appellant has a direct nexus with the production of goods.
Held: In the case of M/s WIPRO LTD vs. COMMISSIONER OF CENTRAL EXCISE BANGALORE-III vide Appeals No. E/20420/2015 dated February 09, 2018, the Hon’ble CESTAT observed that the input clause in a manner so as to hold that the services have direct or indirect nexus with assessee’s business, would defeat legislative intent. Moreover, the Budget Speech of the Finance Minister dated February 28, 2011 stated that a clear definition of ‘input service’ is being provided to clarify which services are eligible for credit & which are not. Primarily the service should be first covered under the definition of ‘input service’ and once the service is not covered due to exclusion clause irrespective of the fact whether the cost of service has been taken as expenditure in the books of accounts does not render the services as an admissible for credit. Thus, food is mainly for personal consumption of the employee & cannot be interpreted in any other way and the full or partial cost of the service is immaterial. Therefore, Outdoor catering service is ineligible for cenvat credit post April 01, 2011 vide Notification No.3/2011 dated March 01, 2011.
Our Comments:
The fact of employees being an indispensable part of any business of manufacturing goods or rendering services needs to be appreciated in its true spirit. This understanding, to an extent, also find position in the CGST Amendment Act, 2018, wherein Section 17(5)(b) of the CGST Act, 2017 is proposed to be amended to allow input tax credit on outdoor catering where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. At present, in GST, input tax credit on outdoor catering is available only where an inward supply of such services is used by a registered person for making an outward taxable supply of the same category of services or as an element of a taxable composite or mixed supply.
Citation: 2018-TIOL-3256-CESTAT-BANG-LB