Custom, Excise & Service Tax Tribunal
M/S Ifb Industries Ltd vs The Commissioner Of Central Excise on 9 January, 2013
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL BENCH
AT BANGALORE.
Bench Single Member
Court I
Date of hearing: 9.1.2013
Date of decision: 9.1.2013
Central Excise Appeal No. 2603 of 2011
[Arising out of Order-in-Appeal No. 172/2011-CE dated 07.06.2011 passed by the Commissioner of Central Excise, (Appeals-I), Bangalore]
For approval and signature:
Honble Shri P. G. Chacko, Member (Judicial)
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 Lordships wish to see the fair copy of the Order? Seen
4. Whether Order is to be circulated to the Departmental authorities? Yes
M/s IFB Industries Ltd.
Appellant
Versus
The Commissioner of Central Excise,
Bangalore.
Respondent
Appearance:
Mr. G. V. Shanmugasundaram, Consultant for appellant Ms.Sabrina Cano, Superintendent (AR) for respondent CORAM :
Honble Mr. P.G. Chacko, Member (Judicial) ORDER No. dated 09.1.2013 This appeal filed by the assessee is against demand of service tax and education cess totaling to Rs. 88,123/- for the period from January to August 2009. The authorities below denied CENVAT credit to the said extent on Outdoor Catering Service and Repair/Maintenance of Guest House on the ground that these were not input services defined under Section 2(l) of the CENVAT Credit Rules, 2004. They also demanded interest on the CENVAT credit amount.
2. The learned consultant for the appellant submits that they were entitled to take CENVAT credit during the above period on outdoor catering service which was used in their factory canteen for free supply of food to the factory workers. In this connection, the learned consultant relies on Final Order No. 898/2010 dated 26.5.2010 passed by this Bench in Appeal No. E/1141/2009 filed by the same assessee for a previous period. In the cited case, the learned Single Member relied on the Tribunals Larger Bench decision in Commissioner vs. GTC Industries Ltd. [2008 (12) S.T.R. 468 (Tri.-L.B.)] as also a decision of the Tribunal reported as Stanzen Toyotetsu India (P) Ltd. vs. CCE, Bangalore-III [2009 (914) S.T.R. 316 (Tri.-Bang.)]. It is pointed out by the learned consultant that the Tribunals decision in Stanzen Toyotetsu India (P) Ltd. case has been upheld by the Honble Karnataka High Court vide Commissioner vs. Stanzen Toyotetsu India (P) Ltd. [2011 (23) S.T.R. 444 (Kar.)]. In all the cited cases, CENVAT credit was allowed on outdoor catering service. As regards maintenance/repairs of guest house, the learned consultant submits that, as the guest house was used for accommodating business guests and conducting business conferences, its repairs and maintenance had a real connection with the business activities of the company and hence should be considered as input service for the purpose of CENVAT credit. In this context, reliance is placed on Commissioner vs. Hindustan Zinc Ltd. [2009 (16) S.T.R. 704 (Tri.-Bang.)] wherein the assessees submission that guest house was used for accommodating business men visiting the factory in connection with its business was accepted and, accordingly, maintenance of guest house was held to be input service for CENVAT credit purpose.
3. The learned Superintendent (AR) submits that the appellant did not employ 250 or more workers in their factory at any point of time during the period of dispute and, therefore, they did not have any statutory obligation to maintain a canteen for the workers and consequently, there is no nexus between the appellants business of manufacture and marketing of excisable products and the use of outdoor catering service for supply of food to the workers. In this connection, reliance is placed on the Honble High Courts judgement in Stanzen Toyotetsu India (P) Ltd. case (paragraph 12). Further, it is pointed out that, in Final Order No. 898/2010 ibid, the number of workers employed by the assessee during the material period was overlooked by the Bench while holding in their favour on the question whether outdoor catering service used in factory canteen for supply of food to the workers could be treated as an input service. With regard to guest house maintenance service, it is submitted that no nexus was found between this service and the manufacture of goods in the case of Hindustan Zinc Ltd. vs. Commissioner [2011 (270) E.L.T. 111 (Tri.-Del.)].
4. In his rejoinder, the learned consultant submits that the show-cause notice in this case had not proposed to deny CENVAT credit on outdoor catering service on the basis of number of workers employed by the noticee during the material period. According to him, the respondent cannot raise such a plea at appellate stage. In answer to a query from the Bench, the learned consultant fairly submits that, during January to August 2009, the appellant had employed less than 250 workers including temporary workers. The documents produced by him indicate that the number of permanent workers employed during the said period is 127 128 and the total number of temporary workers employed during the said period is around 112. Therefore, the submission about the total number of workers being less than 250 appears to be factually correct.
5. I have given careful consideration to the submissions. The show-cause notice in this case had proposed to deny CENVAT credit to the assessee in respect of outdoor catering service and repair/maintenance of guest house on the basic premise that these services/activities did not qualify to be input services under Rule 2(l) of the CCR 2004. The adjudicating authority proceeded on the same premise and accordingly denied CENVAT credit to the assessee. The first appellate authority also followed suit and passed the impugned order. In the result, the first and foremost issue debated before this Tribunal is whether the aforesaid activities/services would qualify to be input services for CENVAT credit purpose.
6. As regards outdoor catering service, the above issue was considered by the Tribunals Larger Bench in GTC Industries case. One of the reasons stated by the Bench for finding nexus between outdoor catering service and the manufacturing activity of the assessee was that the cost of subsidised food supplied by them to workers in the factory canteen by the use of outdoor catering service was included in the cost of production of excisable goods in the factory. The second reason noted by the Bench was that it was mandatory for a factory having more than 250 workers to provide canteen facility within the factory premises under Section 46 of the Factories Act, 1948. The cumulative effect was that the requisite nexus was found between outdoor catering service and the manufacturing activity and, accordingly, the former came to be recognised as an input service. The decision of the Larger Bench in GTC Industries Ltd. 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.)]. This apart, the Honble Karnatake High Court, in paragraph 12 of its judgement in Stanzen Toyotetsu India (P) Ltd. (supra), highlighted the statutory obligation of a factory (employing more than 250 workers) under Section 46 of the Factories Act and proceeded to determine whether the assessee discharged such obligation so as to claim nexus between outdoor catering service (canteen service) and their manufacturing activity. The said paragraph 12 reads thus :
It is in this context that when the assessee provides outdoor canteen facilities because of a statutory obligation imposed on him under Section 46 of the Factories Act, it becomes a condition of service as far as the employees are concerned. He has paid the service tax on outdoor canteen services. The said expenses incurred by the assessee will also be taken into consideration before fixing the price of the final product. It may be a welfare measure but certainly it is not a charity provided by the employer to the employees. It is an onerous legal obligation imposed on him. The cost incurred in rendering such service will be included in the cost of production. Thus, what emerges from the Bombay High Courts judgement in Ultratech Cement Ltd. case and the Karnataka High Courts judgement in Stanzen Toyotetsu India (P) Ltd. case is that there is a nexus between outdoor catering service (canteen service) and manufacturing activity where the canteen service is provided by the manufacturer in discharge of the statutory obligation under Section 46 of the Factories Act and the cost of such service is factored into the cost of production of the final product. In the instant case, admittedly, the appellant did not have any statutory obligation to provide canteen service during the period of dispute inasmuch as they employed less than 250 workers during that period. Had the appellant employed more than 250 workers in their factory during the said period, they would have contended to that effect in their reply to the show-cause notice. Such contention would have been raised in defence vis-`-vis the departments allegation that the outdoor catering service used by them in the factory canteen was not an input service. Therefore, the submission of the learned consultant that the number of workers was not mentioned in the show-cause notice and, hence, the status of input service cannot be denied to outdoor catering service on the basis of the number of workers cannot be accepted. I reiterate that the number of workers, if more than 250, is a defence vis-`-vis the show-cause notice in this case, rather than a ground for the show-cause notice itself.
7. The reliance placed on Final Order No. 898/2010 ibid (which was passed in the assessees own earlier case) does not improve their present case inasmuch as, in that case, CENVAT credit was allowed on outdoor catering service overlooking two crucial points. Firstly, it was the submission of the JDR representing the respondent that the assesssee (appellant) did not have more than 250 workers in their factory and hence CENVAT credit could not be allowed. The veracity of this submission was not examined. Secondly, while claiming support from the Tribunals Larger Bench decision in GTC Industries Ltd. (supra), this Bench overlooked the fact that the Larger Bench had indeed factored the number of workers also in its decision to hold that the assessee (GTC Industries Ltd.) succeeded in establishing nexus between outdoor catering service and manufacturing activity. Therefore, Final Order No. 898/2010 is not a good precedent for the present case.
8. For the reasons already stated, the impugned order denying CENVAT credit to the assessee on outdoor catering service cannot be interfered with.
9. As regards guest house maintenance service, the claim of the appellant is that it was used for accommodating business guests and conducting business meetings. This claim is an ipse dixit with no evidentiary support. Ordinarily, a guest house is meant to house guests. Business meetings are ordinarily held in the conference room of the manufacturing company. If that be so, some positive evidence is required to substantiate the appellants claim that their guest house was used for conducting business meetings and accommodating business guests. No such evidence is forthcoming in this case. Therefore, the activity of repairing/maintaining the guest house cannot be held to have any nexus with the manufacturing activity of the assessee. In this context, I am inclined to adopt the reasoning recorded in the case of Hindustan Zinc Ltd. vs. Commissioner (supra).
10. In the result, the appellant is not entitled to CENVAT credit on outdoor catering service and repair/maintenance of guest house for the period of dispute. The impugned order is sustained and the appeal is dismissed.
(Pronounced and dictated in open court)
(P.G. Chacko) Member (Judicial)
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