Custom, Excise & Service Tax Tribunal
Ms Pepsico India Holdings P Ltd vs Commissioner Of Gst&Amp;Cce (Chennai ... on 10 January, 2019
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. E/41945/2018
(Arising out of Order-in-Appeal No.77/2018/AUDIT-II dated
25.4.2018 passed by the Commissioner of Central Excise,
Service Tax & GST, Chennai Audit II Commissionerate, Chennai)
M/s. Pepsico India Holdings Pvt. Ltd. Appellant
Vs.
Commissioner of GST & Central Excise
Chennai South Respondent
Appearance Shri Raghavan Ramabhadran, Advocate for the Appellant Shri L. Nandakumar, AC (AR) for the Respondent CORAM Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial) Date of Hearing :04.01.2019 Date of Pronouncement :10.01.2019 Final Order No. 40050 / 2019 Brief facts are that the appellants are engaged in the manufacture of aerated water, beverages and fruit pulp or juice based drinks. They are availing the facility of CENVAT credit on various input services. Show cause notice was issued to the appellant proposing to deny CENVAT credit availed by them on canteen services provided to employees and soil filling charges. The appellant accepted the objection in respect of credit availed on soil filling charges and reversed the credit. They defended 2 the disallowance of credit on canteen services. After due process of law, the original authority confirmed the disallowance of credit on canteen services on the ground that the credit does not qualify as input services. The demand was confirmed along with interest and penalty of Rs.32,402/- was imposed. In appeal, Commissioner (Appeals) upheld the same. Hence this appeal.
2. On behalf of the appellant, ld. counsel Shri Raghavan Ramabhadran submitted that the appellant is in appeal only against the disallowance of credit on canteen services / outdoor catering services. The appellant is a factory as defined under the Factories Act, 1948. The outdoor catering services are incurred by the appellant as per the statutory obligation under section 46 of the Factories Act to provide canteen facility to its workmen / employees within the factory premises. Therefore, the service is integrally connected with the activity of manufacture. The credit has been disallowed by the department alleging that outdoor catering services is excluded by the exclusion clause in the definition of input service. The exclusion is applicable only to services relating to personal consumption. In other words, credit is eligible when outdoor catering services are not for personal consumption of the employees. 2.1 The Larger Bench of the Tribunal in the case of Wipro Ltd. Vs. Commissioner of Central Excise, Bangalore - 2018 (4)TMI 149 CESTAT Bangalore has held that outdoor catering services are excluded from the definition of input services with effect 3 from 1.4.2011. This decision proceeds on the basis that outdoor catering services is specifically mentioned in the exclusion clause of the definition and that the intention of the legislature is to deny credit on such services. The ld. counsel argued that as per the definition of input services, the exclusion of outdoor catering is not unqualified. The definition does not exclude all catering services unconditionally. Only such outdoor catering services which are used primarily for personal use or consumption for employee is excluded from the ambit of input service. Similarly, the life and health insurance services are also excluded from the definition when they are used primarily for consumption of the employees. Thus, the health insurance services and outdoor catering services stand on the same footing insofar as the exclusion clause is concerned. 2.2 He relied upon the decision of the jurisdictional High Court in the case of Ganesan Builders - 2018 VIL 475 MAD ST to argue that the Hon‟ble Court had occasion to deal with the exclusion clause provided in the definition with effect from 1.4.2011 relating to insurance service. In the said case, the credit was denied by the authorities below on the ground that insurance service is intended for the employees of the company and therefore should be construed as for personal use or consumption of the employees. However, while interpreting the exclusion clause, the Hon‟ble Court held that the employee insurance is provided under a statutory requirement stipulated in Workmen‟s Compensation Act, 1996 which is a beneficial 4 legislation for the welfare of the employees. Since it is a statutory requirement, the Court held that the services cannot be held to be used primarily for personal use or consumption of an employee. Thus, the Hon‟ble High Court has laid down a test as to whether the services used to provide certain employee benefit and whether it flows out of statutory requirement of a welfare labour legislation. Such services which are provided under a statutory requirement cannot be said to be used primarily for the personal use or consumption of an employee. He therefore argued that the exclusion clause of the definition will not take away outdoor catering services provided within the factory premises for the benefit of employees as per the statutory requirement.
2.3 He also adverted to the decision in the case of Hindustan Coca-Cola Beverages as reported in 2017 (49) STR 88 (Tri. Hyd.) and argued that the Tribunal in the said decision had held that outdoor catering services which are provided as per statutory requirement would be eligible for credit. Though the said decision was referred to the Larger Bench, the Hon‟ble High Court has referred to the said decision in the case of Ganesan Builders (supra). That since the Hon‟ble High Court has drawn reference to this decision in the case of Ganesan Builders (supra), the very same ratio should be applicable to the case of outdoor catering services also.
2.4 The decision of the Hon‟ble jurisdictional High Court in the case of Rane TRW Steering System Ltd. - 2018 (2) TMI 1745 - 5 Madras High Court was also taken assistance by the ld. counsel to support his argument. In the said case, when the gardening services were availed by the assessee as per the pollution control norms/requirement, the credit was held to be eligible for the period after 1.4.2011.
2.5 The ld. counsel put forward an alternate plea with regard to penalty. In any case, the issue involved is interpretational in nature involving legal provisions as seen from the fact that the matter was referred to the Larger Bench. The appellant was regularly filing returns and also disclosed the credit availed on outdoor catering service in their ST-3 returns. Therefore, there is no ingredients for imposing penalty and prayed to set aside the penalty.
3. The ld. AR Shri L. Nandakumar supported the findings in the impugned order. He adverted to definition of input service and submitted that after 1.4.2011, the exclusion clause has been added to the definition. As per clause (c) of the definition, the services in relation to outdoor catering, beauty treatment, health services etc. are excluded when such services are primarily for personal use or consumption of an employee. Outdoor catering services are used for consumption of the employees and therefore the authorities below have rightly disallowed the credit. He relied upon the decision of the Larger Bench of the Tribunal in the case of Wipro Ltd. (supra) and strongly argued that the said issue has attained finality by the decision of the Larger Bench.
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4. Heard both sides.
5. The issue is with regard to the disallowance of credit on outdoor catering service / canteen service. Undisputedly, the appellant is a factory coming within the ambit of Factories Act. Section 46 of Factories Act provides that the appellant has to provide facilities like canteen for the employees within the factory premises. The ld. counsel has made detail submissions with regard to the statutory requirement for providing canteen facility to the employees within the factory premises. The definition of input services after 1.4.2011 contains exclusion clause wherein certain services are specifically excluded. For better appreciation, the definition of input service as it stands after 1.4.2011 is reproduced as under:-
„(l) "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) Service portion in the execution of a works contract and construction services including service listed under clause (b) of Section 66E of Finance Act (hereinafter referred as specified services) insofar as they are used for-7
(a) construction or execution of works contract 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) Services provided by way of renting of a motor vehicle, insofar as they relate to a motor vehicle which is not a capital goods; or (BA) Service of general insurance business, servicing, repair and maintenance, insofar as they relate to a motor vehicle which is not a capital goods, except when used by-
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; 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;
[Explanation: For the purpose of this clause, sales promotion includes, services by way of sale of dutiable goods on commission basis].‟ 5.1 Clause (C) of the above definition states that services such as those is provided in relation to outdoor catering when such services are used primarily for personal use or consumption of any employee is not eligible for credit. The Tribunal in the case of Hindustan Coca-Cola Beverages (supra) had observed that if such services are provided as per the statutory requirement, they are eligible for credit. The relevant portion is noted as under:-
"7. The appellants contend that canteen/outdoor catering services is provided within the factory premises in 8 compliance to the provisions of the Factories Act, 1948. It is also submitted that such services are not used primarily for personal use or consumption of employee. In P. Ramanathan Aiyar‟s Advanced Law Lexicon 3rd edition, the word primarily is defined as "that which is first in order, rank or importance, anything from which something else arises or is derived." The word means something which is more proximate or more important. When outdoor catering services, beauty treatment, health services, etc. used for personal use or consumption of an employee, it would not qualify as „input service‟. In the instant case, as per Factories Act, 1948, the appellants are compelled to provide food facilities inside the factory. It is more importantly used by the appellant to comply with the mandatory requirement under Factories Act. If they do not comply with such provision of the Factories Act, the appellants will definitely not be able to engage in the production/manufacture of final products. Therefore outdoor catering services are used by appellant in relation to the business of manufacture and not for any personal use or consumption of employee."
5.2 The Tribunal thus noted that the outdoor catering services are availed primarily as per requirement of appellant in order to engage in manufacture of finished product and is not for personal consumption or personal use of employee. However, the said decision was referred to the Larger Bench and vide decision in the case of Wipro Ltd. (supra), the Larger Bench of Tribunal held that since outdoor catering services are specifically mentioned in the exclusion clause of the definition, credit is not eligible.
5.3 I do note that the Hon‟ble High Court of Madras in the case of Ganesan Builders (supra) has analyzed the issue of eligibility of credit when there is a statutory requirement as per the labor laws to provide such facilities / benefits to the employees. The said decision has analyzed the issue of providing insurance service to the employees. The issue whether outdoor catering 9 services are eligible for credit was decided by the Larger Bench wherein it is held that credit is not eligible. In obedience to judicial discipline, I am of the view that the decision in Wipro Ltd. (supra) would be applicable to the issue in this appeal. Following the Larger Bench decision, I hold that the credit is not eligible to the appellants.
5.4 However, taking note of the fact that the issue is interpretational one and that the appellant have disclosed the details of the credit availed in their ST-3 returns, I am of the view that penalty imposed cannot sustain and the same is set aside.
6. From the discussions made above, the impugned order is modified to the extent of setting aside the penalty imposed without disturbing the demand or interest thereon under outdoor catering service. The appeal is partly allowed in the above terms.
(Pronounced in court on 10.01.2019) (Sulekha Beevi C.S.) Member (Judicial) Rex