By TIOL News Service

NEW DELHI, MAY 21, 2013: THE appellant/assessee is in the business of providing management consultancy services and had availed credit for various services claimed to be input services. Generically, the several input services for which Cenvat credit was availed by the assessee could be categorised as: -

(a) Management, maintenance or repair service amounting to Rs.27 ,33,762 /-.

(b) Employee Mediclaim insurance amounting to Rs.25 ,79,766 /-.

(c) Cab hire - rent-a-cab services amounting to Rs.12 ,08,907 /-.

(d) Car parking - renting of immovable property service amounting to Rs.7 ,44,191 /-; amounting in all to Rs.72,66,625/-.

Revenue assumed that the aforementioned services were not eligible for claim of Cenvat credit as input services and issued a Show Cause Notice dated 24.6.2011 asserting that these services fall outside the purview of input services, defined under Rule 2(1) of Cenvat Credit Rules, 2004 Rules as these were neither used for providing output service nor used directly or indirectly in relation to manufacture of final products or for clearance of final products; and that consequently Rs . 72,66,625/-, being the amount of Cenvat credit availed for these services is inadmissible, recoverable and liable to interest and penalties, for unauthorised availment . After a due process, the adjudication order impugned in the present appeal was passed on 29.10.2012.

The question whether the categories of input services claimed by the appellant (management, maintenance or repair service, employee mediclaim insurance, cab services and parking services) could legitimately be comprehended as input service for availing Cenvat credit, is the question that falls for appellate consideration of the CESTAT.

The adjudicating authority has recorded the following reasons for disallowing Cenvat credit as claimed by the appellant : -

(a) that service of cab hire was not used by the appellant for providing output service, since the service was used for transport of employees from their residence to the work spot. This service is in the nature of employee' welfare and not linked to the provision of output services (para 28.2)

(b) the service of car parking was not used by the appellant for providing the output service, since the same was used for parking of employees cars. Provision of car parking facility for employees cannot be regarded as input service used for providing output service under Rule 2(l) of the 2004 Rules (para 29.1).

(c) Common area maintenance charges were collected by DLF on various ancillary services provided along with the leased premises. This is not covered under Rule 2(l). The said Rule covers only services received in the office of the service provider and common areas cannot be regarded as official premises integral to the provision of output service (para 30.1).

(d) Provisions of employee mediclaim insurance does not also a direct nexus with providing the output services as is for the benefit of the employees, as a welfare measure.

Judicial Decisions/ Board Circulars:

In CCE, Banagalore -II Vs. Millipore India Pvt. Ltd, the Karnataka High Court held that the definition of input services is broadly worded and enacts an inclusive definition enumerating certain components, illustratively; that activity relating to business and services rendered in connection with it would form part of input services. On this interpretation, the High Court concluded that medical benefit extended to the appellant's employees and insurance policy taken out to cover risk and accident to the vehicle as well as person of the employees and landscaping of factory garden could legitimately be claimed to be input services, entitled for the claim of Cenvat credit. Revenue's appeal was rejected.

Appellant placed reliance on the Circular of the CBEC dated 29.4.2011 wherein it is clarified that Cenvat credit is available on rent-a-cab service received before 1.4.2011 if provision of such service had been completed before the said date. This clarification restricting the eligibility to availment of Cenvat credit for running a cab service up to 1.4.2011 is on account of an amendment introduced into the definition of input service (with effect from 1.4.2011) excluding availment of Cenvat credit in relation to motor vehicle except when used for the provision of taxable services for which credit of motor vehicle is available as capital goods.

Appellant also relies on the CBEC Circular dated 19.1.2010 which clarifies different phrases used in the Rules. Para 3.1.2 of this circular seeks to clarify the meaning of the phrase "used in relation to", by stating that when employed in transactions involving BPOs/call centres, services directly relatable to their export business including renting of premises, services like outdoor catering or rent-a-cab for pick up and dropping of its employees to office would also be eligible for credit, since these offices run round the clock and transportation and provision of food to the employees are necessary pre-requisites which the employer has to provide to ensure efficient output service.

In CCE Nagpur Vs. Ultratech Cement Ltd. - (2010-TIOL-745-HC-MUM-ST), i ssue before that Court was whether the decision of the CESTAT that the assessee was entitled to avail Cenvat credit on outdoor catering services provided in the factory for its employees, is an input service credit. Though outdoor catering services is not specified as input service as defined in Rule 2(l), the Bombay High Court after noticing the decision of the Hon'ble Supreme Court in Maruti Suzuki Ltd. Vs. CCE - (2009-TIOL-94-SC-CX) distinguished the observation in Maruti Suzuki Ltd. pertaining to elucidation of the expression 'input' is not wholly applicable to comprehend the meaning of the expression "input service" and held that unlike the definition of 'input' which is restricted to inputs used directly or indirectly in or in relation to manufacture of final product, "input service" not only includes services used directly or indirectly in or in relation to manufacture of final product but includes services used in relation to the business of manufacture of final products, as well. The Bombay High Court concluded that all services used in the manufacture of the final product are covered under the definition of input services; and that in the case before it, outdoor catering services being integrally connected with the business of the manufacture of cement, credit of service tax paid on such service has been rightly availed by the appellant.

Cenvat credit availed in respect of employees insurance was upheld in other decisions of this Tribunal as well in India Gateway Terminal (P) Ltd. Vs. CCE, Cochin - (2010-TIOL-1265-CESTAT-BANG), Stanzen Toyotetsu India Pvt. Ltd. Vs. CCE Bangalore (2009-TIOL-697-CESTAT-BANG) , CCE Raipur Vs. Raipur Rotocast Ltd. - (2009-TIOL-1856-CESTAT-DEL),

Issue of Cenvat credit on cab hire services was considered by the Karnataka High Court in CCE, Bangalore-III Vs. Tata Auto Comp. Systems Ltd. - (2011-TIOL-703-HC-KAR-CX). Answering the substantial question framed in favour of the assessee, the Karnataka High Court reiterated that transportation/rent-a-cab service provided by the employer to its employees in order to reach the factory premises in time has a direct bearing on the manufacturing activity and cannot be construed as a mere welfare measure nor availment of Cenvat credit denied on that assumption.

Car parking facility has been held to constitute input service in relation to the business of mandap keeper service, by this Tribunal in Desert Inn Limited Vs . CCE, Jaipur - (2011-TIOL-572-CESTAT-DEL)

This Tribunal in CCE, Nagpur Vs. Ultratech Cement Ltd. (2010-TIOL-1067-CESTAT-MUM) rejected Revenue's appeal and ruled in favour of the assessee with regard to the legitimacy of availment of Cenvat credit for service tax in respect of services including maintenance and repairs of the fly ash plant situated with the Thermal Power Plant located outside the factory premises, on interpretation of Rule 2(l) of the 2004 Rules.

Held : Cenvat credit availed by the appellant for common area management, maintenance or repair service; employee mediclaim insurance; cab services; and car parking are eligible for the claim of Cenvat credit. The conclusion by the adjudicating authority to the contrary in the order under appeal is thus unsustainable and is accordingly quashed.

(See 2013-TIOL-761-CESTAT-DEL)