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2015 (8) TMI 158 - MADRAS HIGH COURT

2015 (8) TMI 158 - MADRAS HIGH COURT - TMI - Cenvat Credit - input services - outdoor catering service - canteen services, providied in the factory - Held that:- The Bombay High Court came to the conclusion that the decision of the Larger Bench of the CESTAT in the case of CCE V. GTC Industries Ltd. [2008 (9) TMI 56 - CESTAT MUMBAI] is a correct law, however, with a rider that where the cost of the food is borne by the worker, the manufacturer cannot take credit of that part of the service tax w .....

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ppan JUDGMENT (Judgment of the Court was delivered by R. Sudhkar, J.) This Civil Miscellaneous Appeal filed by the Revenue is as against the order of the Customs, Excise and Service Tax Appellate Tribunal in allowing the appeal filed by the assessee so far as denying the benefit of Cenvat credit on the service tax paid on outdoor catering services provided in the factory for employees of the factory. This Court, admitted this appeal on 14.12.2009, on the following substantial questions of law : .....

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oyees, was eligible for availment and utilization in terms of Rule 3 read with Rule 2 (1) ? and 3. Whether the Customs, Excise and Srvice Tax Appellate Tribunal, South Regional Bench, Chennai, was correct in relying on the impugned Final order on the ratio of the decisionof the Larger Bench in the case of CCE, Mumbai, vs. GTC Industries Limited, reported in 2008 (12) STR 468 (Tri.L.B.) without recording any findings as to the applicability of the ratio of the relied on case to the facts of the p .....

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assessee had taken cenvat credit on input service viz. Outdoor catering services provided by M/s. S.M. Catering Service and M/s. MRS Catering Service. As it appeared that outdoor catering services come outside the purview of the definition provided for the input services, the department alleged that the assessee had taken credit wrongly in violationof Rule 2 (1) of CCR '04. Accordingly, a Show Cause Notice was issued to deny the ineligible credit of ₹ 3,14,839/- with interest under Rul .....

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vity related to business and even if it is obligatory on the part of the appellant as per the requirement of the Factories Act 1948, to provide a canteen, this does not automatically lead to the conclusion that a catering service relates to business activity. The assessee approached the Tribunal challenging the order of the Commissioner (Appeals). 3. The Tribunal, allowed the appeal by holding that, 2. On hearing both sides, I find that the issue in dispute namely as to whether credit is admissi .....

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he appeal. Challenging this order of the Tribunal, the revenue has filed the present appeal. 4. Heard learned Standing Counsel appearing for the Revenue and the learned counsel appearing for the assessee and perused the materials placed before this Court. 5. The core issue involved in this appeal is whether the assessee can utilise the cenvat credit facilities in respect of outdoor catering services, provided in the factory for its employees, as input service. 6. In an identical circumstance, th .....

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(240) ELT 641 (SC) . The Bombay High Court came to the conclusion that the decision of the Larger Bench of the CESTAT in the case of CCE V. GTC Industries Ltd. 2008 (12) STR 468 is a correct law, however, with a rider that where the cost of the food is borne by the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. 7. For better clarity, the relevant portion of the decision of the Bombay High Court in the case of CCE V. Ultratech Cement L .....

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es rendered after the manufacture of final products (such as advertisement, sales promotion, market research etc.) and includes services rendered in relation to business such as auditing, financing ... etc. Thus, the substantive part of the definition "input service" covers services used directly or indirectly in or in relation to the manufacture of final products, whereas the inclusive part of the definition of "input service" covers various services used in relation to the .....

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estricted to services used in or in relation to manufacture of final products, but extends to all services used in relation to the business of manufacturing the final product. 29. The expression "activities in relation to business" in the definition of "input service" postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qu .....

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de that it would cover innumerable items as "input" and to avoid such contingency the Legislature has incorporated the inclusive part after the substantive part qualified by the place of use. For example, one of the categories mentioned in the inclusive part is "used as packing material". Packing material by itself would not suffice till it is proved that the item is used in the course of manufacture of final product. Mere fact that the item is a packing material whose value .....

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levant, namely, use of input in the manufacturing process, be it direct or indirect as also absence of the input in the final product on account of the use of the expression "used in or in relation to the manufacture of final product". Similarly, we are of the view that consideration such as input being used as packing material, input used as fuel, input used for generation of electricity or steam, input used as an accessory and input used as paint are per se also not relevant. All the .....

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in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression "used in or in relation to the manufacture" have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for credit only when used in or in relation to the manufacture of final product. Hydrogen gas used in the manufacture of sodium cyanide is a .....

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er se. They become relevant only when the above crucial requirement of being "used in or in relation to the manufacture" stands complied with. In our view, one has to therefore, read the definition in its entirety." 31. In our opinion, the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd. (supra) in the context of the definition of 'input' in rule 2(k) of 2004 Rules would equally apply while interpreting the expression "activities relating to busines .....

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e ratio laid down in the case of Maruti Suzuki Ltd. (supra) while interpreting the scope of 'input service'. Accordingly, in the light of the judgment of the Apex Court in the case of Maruti Suzuki Ltd. (supra), we hold that the services having nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product would qualify to be input service under rule 2(l) of 2004 Rules. 32. As rightly contended by Shri Shridharan, learned Couns .....

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e services of an outdoor caterer has nexus or integral connection with the business of manufacturing the final product namely, cement. Hence, in our opinion, the Tribunal was justified in following the Larger Bench decision of the Tribunal in the case of GTC Industries Ltd. (supra) and holding that the assessee is entitled to the credit of service tax paid on outdoor catering service. 33. It is argued on behalf of the revenue that not only the ratio but the decision of the Apex Court in the case .....

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or indirectly in or in relation to manufacture of final products, but also includes services used in relation to the business of manufacturing the final products. Therefore, while interpreting the words used in the definition of 'input service', the ratio laid down by the Apex Court in the context of the definition of 'input' alone would apply and not the judgment in its entirety. In other words, by applying the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd. .....

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her services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In the facts of the present case, use of the outdoor catering services is integrally connected with the business of manufacturing cement and therefore, credit of service tax paid on outdoor catering services would be allowable. 35. The argument of the revenue, that the expression "such as" in the definition of input service is exhaustive and is restricted to the .....

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used in the business of manufacturing the final products. Moreover, the categories of services enumerated after the expression 'such as' in the definition of 'input service' do not relate to any particular class or category of services, but refer to variety of services used in the business of manufacturing the final products. There is nothing in the definition of 'input service' to suggest that the Legislature intended to define that expression restrictively. Therefore, i .....

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ervice' and in the present case, the outdoor catering services being integrally connected with the business of the manufacture of cement, credit of service tax paid out on catering services has been rightly allowed by the Tribunal. 36........... 37........... 38. We concur with the above decision of this Court in the case of Coca Cola India (P.) Ltd. (supra). However, in that case, this Court has also held that the cost of any input service that forms part of value of final products would be .....

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