CX - A harmonious reading of definitions of Input Service and 'factory' in s. 2(e) would indicate that canteen building will also be considered as part of factory - Since tax paid on Outdoor catering is allowed as credit, Construction Service used in construction of canteen within factory premises is also Input Service - Appeal allowed: CESTAT
By TIOL News Service
MUMBAI, DEC 12, 2013: THE appellant constructed a canteen building within their factory premises and availed credit of input service namely Construction service. Revenue objected to the same on the grounds that construction of canteen building is not construction of factory and, therefore, not covered under the definition of input services in terms of Rule 2(l) of the CCR, 2004.
As both the lower authorities confirmed the demand, the appellant is before the CESTAT.
It is submitted that the canteen building has two floors and while the ground floor is used for storage of raw material the first floor is used as canteen. Furthermore, providing canteen is statutory requirement under the Factories Act and, therefore, canteen has to be considered as integral part of the factory and factory cannot be limited to the manufacturing area alone. In support, reliance is placed on the decisions in Ultratech Cement Ltd. 2010-TIOL-745-HC-MUM-ST, Ferromatik Milacron India Ltd. - 2010-TIOL-851-HC-AHM-ST and StanzenToyotestu India (P) Ltd.- 2011-TIOL-866-HC-KAR-ST. It is also submitted that since credit on the outdoor catering services is allowed, there is no reason why the construction service used in constructing the canteens should not be allowed.
The Revenue representative reiterated the findings of the lower authority and submitted that canteen is not a manufacturing place; therefore not part of the factory; credit on construction service, therefore, cannot be allowed; that at the time of SCN as also in the initial reply appellant has not claimed that ground floor is used for storage of raw material/finished product but have done so only at the time of adjudication.
The Single Member Bench adverted to the definition of “Input Service” contained in rule 2(l) of the CCR, 2004 and observed -
“It would be seen from the above definition of input service, input service includes services used in relation to setting up of the factory as also, for an office relating to such factory. The term factory is not defined under Cenvat Credit Rules. However, the factory is defined under Section 2(e) of the Central Excise Act, 1944 and is as under:-
(e) “factory" means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on;”
A harmonious reading of the above two definitions would indicate that canteen building will also be considered as a part of the factory, for purpose of definition of the input services as the definition of input services includes not only the factory but also the office relating to such factory. I am not impressed with argument of the Ld. A.R. that factory has to be limited to the area where the goods are to be produced. Other area which are required for ancillary support work such storing of raw material, finished products and other materials including canteen would be part of the factory. Moreover under Section 46 of the Factories Act, 1948, it is mandatory for the employer to provide canteen service to the staff. Even in Central Excise when registration is granted to a factory it is not limited to the manufacturing area but is to the entire campus which would include the canteen also.”
After referring to the decisions of the Gujarat & Karnataka High Court ( supra ) holding that outdoor catering services provided in factory canteen would be eligible to be considered as input service, the Bench with a note of caution further observed -
“6. In view of the judgment of the Hon'ble Courts as also the analysis in para 5 relating to the definition of input services and factory, I hold that appellant could be eligible to take the input service credit relating to construction services at the material time i.e. July 2005. The definition of input service has undergone change w.e.f1.3.2011, the situation may not be the same from that date.”
In fine, the appeal was allowed.
( See 2013-TIOL-1849-CESTAT-MUM)
