Custom, Excise & Service Tax Tribunal
M/S. Resil Chemicals Private Ltd vs The Commissioner Of Central Excise on 2 March, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, BANGALORE SOUTH ZONAL BENCH COURT - I Appeal No: E/1116 & 1117/2010 & E/945/2011 (Arising out of Order-in-Appeal No: 90 & 91/2010-C.E. dated 26.2.2010 and Order-in-Appeal No.371/2010-CE dated 28.12.2010 passed by the Commissioner of Central Excise (Appeals-I), Bangalore.) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether their Lordship wish to see the fair copy of the Order? Seen 4. Whether Order is to be circulated to the Departmental authorities? Yes M/s. Resil Chemicals Private Ltd. Appellant Versus The Commissioner of Central Excise Bangalore Commissionerate-I Bangalore. Respondent
Appearance Shri T.M. Subramanian, Advocate for the appellant.
Shri R.K. Singla, JCDR (AR) for the Revenue.
CORAM SHRI P. G. CHACKO, HONBLE MEMBER (JUDICIAL) Date of Hearing: 02.03.2012 Date of decision: 02.03.2012 FINAL ORDER Nos._______________________2012 The denial, by the lower authorities, of CENVAT credit to the appellant in respect of certain services for the relevant period is under challenge in these appeals. The services which were claimed to be input services by the appellant before the lower authorities are (i) outdoor catering service, (ii) air travel service, (iii) rent-a-cab service, (iv) cleaning/house-keeping service, and (v) CHA Service. The periods of dispute are (i) February 2006 to January 2008 (No.E/1116/2010), (ii) January to May 2008 (No.E/1117/2010) and (iii) August to December 2008 (E/945/2011). The lower authorities denied CENVAT Credit on the aforesaid services holding that the services were not proved to be input services coming within the ambit of the definition of input service given under Rule 2(l) of the CENVAT Credit Rules (CCR), 2004. Various reasons were stated by the authorities for holding that the services availed by the appellant did not qualify to be input services for the purpose of CENVAT credit. The appellant was found to have contravened the provisions of the CCR, 2004 through irregular availment of CENVAT credit on the aforesaid services and, on this basis, penalties were also imposed on them under Rule 15 of the CCR, 2004.
2. On a perusal of the records and hearing both sides, I note that the appellant was maintaining a canteen in their factory premises and providing food to the employees by availing the services of outdoor caterers during the relevant period. I am told that the number of employees/workers was less than 250 throughout the material period. The learned counsel for the appellant submits that the cost of supply of food to employees formed a part of the assessable value of the goods manufactured by the appellant as evidenced by certificate of their Chartered Accountant. He has made similar pleading in respect of other services also. As regards outdoor catering service, the learned counsel has also claimed support from the Larger Bench decision in the case of Commissioner vs. GTC Industries Ltd.: 2008 (12) STR 468 (Tri.-LB) wherein one of the conditions laid down for allowing CENVAT credit on outdoor catering service was the cost of food being a part of cost of production of goods. It is pointed out that the decision in GTC Industries case was upheld by the Honble Bombay High Court (Nagpur Bench) in the case of Commissioner vs. Ultratech Cement Ltd.: 2010 (260) E.L.T. 369 (Bom..) Claiming further support from the High Courts judgment, the learned counsel submits that outdoor catering service having been availed in connection with the business of the company merits recognition as an input service defined under Rule 2(l) of CCR, 2004. In this context, it is fairly pointed out that the appellant recovered a part of the cost of food from their employees (ultimate consumers). The learned counsel quickly adds that the company will not claim CENVAT credit on outdoor catering service to the extent of recovery from their employees. The learned Commissioner (AR), on the contrary, submits that the appellant who admittedly did not employ 250 or more people during the material period cannot claim the benefit of CENVAT credit on outdoor catering service. It is further submitted that, even otherwise, the benefit cannot be claimed by them to the extent the food supplied to the employees was subsidized. According to the learned Commissioner (AR), the appellant cannot claim the benefit under Rule 2(l) of the CCR, 2004 as interpreted by the Honble High Court in the case of Ultratech Cement Ltd. and also by the jurisdictional High Court in the case of Commissioner vs. Stanzen Toyotetsu India (P) Ltd.: 2011 (23) S.T.R. 444 (Kar.). Para 39 of Ultratech Cement Ltd. (supra) and para 12 of Stanzen Toyotetsu (supra) are particularly referred to. In his rejoinder, the learned counsel for the appellant refers to Bell Ceramics Ltd. vs. Commissioner: 2011 (21) S.T.R. 417 (Tri.-Bang.) wherein, on the facts of that case, CENVAT credit was allowed to the assessee on outdoor catering services, who employed less than 250 workers. It is argued that the CCR, 2004 do not stipulate any condition related to number of employees for a manufacturer to claim CENVAT credit on outdoor catering service and therefore the benefit is available to the appellant irrespective of the number of employees.
3. I have given careful consideration to the submissions. It is not in dispute that, supply of food was subsidized and that the appellant is not entitled to claim CENVAT credit to the extent food was supplied in a subsidized manner. Another fact that emerges is that the cost of supply of food was also incorporated in the cost of production. To this extent, the appellant appears to have satisfied certain requirement laid down by the Honble High Courts in the cases of Ultratech Cement Ltd. (supra), and Stanzen Toyotetsu. In the case of GTC Industries (supra) the Tribunals Larger Bench had considered the number of employees as one of the factors in the context of examining whether the assessee could claim CENVAT credit on outdoor catering service. Section 46 of the Factories Act was taken note of and it was held that it was mandatory, under that provision, for a manufacturer employing more than 250 workers to maintain a canteen in the factory. Accordingly, it was held to the effect that there was nexus between outdoor catering service and the manufacture of goods by the manufacturer who availed the said service for supply of food to workers numbering 250 or more. In other words, the legal obligation of the manufacturer under the Factories Act was considered as a relevant factor determinative of nexus between the service and the business of manufacture of goods. This part of the decision of the Larger Bench in GTC Industries case came to be upheld by the Honble High Court in Ultratech Cement case. The Honble Karnataka High Court also, in para 12 of its judgment in Stanzen Toyotetsu case, considered the provisions of the Factories Act in the context of deciding whether there was nexus between outdoor catering service and the business of manufacture of goods. In this scenario, I am constrained to hold that the appellant cannot claim CENVAT credit on outdoor catering service.
4. As regards air travel service and rent-a-cab service, the learned counsel submits that these services were availed in connection with the business of the appellant. The employees of the company made use of these services to travel locally and outside the country for various purposes connected with the business of the company. Therefore, according to the learned counsel, these services would qualify to be input services in terms of Rule 2(l) ibid. In this connection, he has shown me copies of specimen invoices issued by air travel agents and rent-a-cab operators. I have perused these documents and have found nothing therein indicating the purpose of travel. The submission of the learned Commissioner (AR) is also that the appellant has not established any connection between the travel of employees and the business of the company. It is the submission of the learned counsel that, given an opportunity, evidence of such connection can be established by the appellant. Similar submissions have been made from both sides in respect of cleaning/house keeping service also. I am of the view that, for the ends of justice, a reasonable opportunity should be given to the appellant to establish, before the original authority, the requisite nexus between the business of manufacture of goods and the services which are claimed to be input services for the purpose of CENVAT credit.
5. As regards CHA service, the learned counsel submits that this service was availed for export of goods. He points out that this fact is not in dispute and that the benefit was denied on the sole ground that the port of export was not the place of removal of the goods. The learned counsel is questioning this view of the authorities on the strength of the Tribunals decision in Kuntal Granites Ltd. vs. Commissioner: 2007 (215) E.L.T. 515 (Tri.-Bang.) wherein it was held that the place where export documents were presented to the customs was the place of removal for exports under Section 5 of the Central Excise Act. Learned Commissioner (AR) points out that there are instances of CHAs undertaking activities which are ordinarily outside the ambit of CHAs functions under the CHALR, 2004. It is submitted that, in this case, it is yet to be proved that the service of CHA was availed by the appellant for export of goods. After considering these submissions, I am of the view that there is no dispute regarding the purpose for which CHA service was availed by the appellant. The service was availed for export of goods, a fact recognized by the department inasmuch as the ground raised for denying CENVAT credit on this service is that the port of export was not the place of removal. In the case of Kuntal Granites Ltd., it appears, the port of export was held to be the place of removal of the goods exported. It is not deniable that CHAs service was availed by the appellant for export of their goods, which was a part of their business. The requisite nexus between the service and the business of the company stands established. Hence CENVAT credit is admissible on the CHA service to the appellant. In the result, these appeals are partly allowed, partly rejected and partly allowed by remand. CENVAT credit on CHA is held admissible to the appellant and that on outdoor catering service is held inadmissible. The question whether CENVAT credit can be claimed on other services shall be revisited by the original authority after giving the party a reasonable opportunity of being heard and adducing evidence. Needless to say that the quantum of inadmissible CENVAT credit should be determined and demanded with interest.
6. On the penalty-related issue also, I have heard both sides. The submission of the learned counsel is that no penalty can be imposed under Rule 15 of the CCR, 2004 on any person who is found to have wrongly taken CENVAT credit on input services. This submission flies in the face of sub-rule (3) of Rule 15. This sub-rule provides for penalty for irregular availment of CENVAT credit on input services. This provision also lays down the extent of penalty which can be imposed on the offender. Prior to 11.5.2007, it was Rs.10,000/-. From the said date, it is Rs.2000/-. This legal position is indisputable. However, the question whether the maximum penalty under the sub-rule should be invoked on the party cannot be determined at this stage inasmuch as the degree of offence of irregular availment of CENVAT credit will be ascertained only by the original authority pursuant to this order. That authority will also determine the amount of penalty to be imposed on the appellant after giving them an opportunity of being heard.
7. All the three appeals stand disposed of in the above terms.
(Pronounced and dictated in open Court) (P. G. CHACKO) Member (J) rv ??
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