By TIOL News Service

NEW DELHI, FEB 23, 2015: THE appellant is Maruti Suzuki. They had entered into a license agreement with M/s Suzuki Motors Corporation, Japan, under which M/s SMC was to provide the technology for manufacture of motor vehicles against royalty. In terms of clause titled "Welfare" in the agreement, the appellant were to provide each visiting technical personal of M/s SMC with first class furnished western style house ready to use with all necessary furniture, telephone, water supply, cooking facilities, Gas supplies, Air conditioners etc., at the company's expense except that the electricity, water and telephone charges shall be borne by the personnel and that the company shall also provide guards at the respective houses.

But naturally, the appellant had to provide these facilities and, therefore, they rented residential premises for the visiting technical personnel of SMC. The Service Tax paid on rent for hiring the premises has been allowed as CENVAT credit by the department inasmuch no objection has been raised in the form of any SCN.

However, the department is objecting to the credit taken of service tax paid on "Outdoor Catering service" and "House-keeping services" - period of dispute is from July 2006 to March 2012.

The CENVAT credit taken in respect of these services is a whopping Rs.98,34,077/-.

It is the contention of the department that these services being of 'welfare nature' are not admissible for CENVAT credit.

The CCE, Delhi-III was not impressed with the submissions, read hospitality showered on the Japanese engineers by the car company and, therefore, confirmed the demand along with equivalent penalty and interest.

Before the CESTAT, the appellant submitted that although the facilities that have been provided to the visiting personnel are mentioned under the heading "welfare" in the license agreement, the fact of the matter is that the same is an obligation on their part and that the judgment of the Bombay High Court in the case of Manikgarh Cement - 2010-TIOL-720-HC-MUM-ST relied upon by the Revenue is not applicable but the decision of the Andhra Pradesh High Court in case of - ITC Ltd. - 2012-TIOL-199-HC-AP-ST is wherein it is held that services of providing residential facilities to the workers and their maintenance would be eligible for CENVAT credit as the same are covered by the term "activities relating to business"; that the services had been received during the period prior to 01.04.2011 and hence qualify as "Input service". Inasmuch as since they have a strong prima facie case in their favour, the requirement of pre-deposit is required to be waived and stay should be granted, pleaded the appellant.

The AR emphasized that the services of outdoor catering and house-keeping service availed are welfare activities which have no nexus with the manufacture of the final product and hence, in view of the judgment in Manikgarh Cement the credit is inadmissible.

The Bench considered the submissions and observed -

++ The appellants, in terms of their agreement with M/s SMC, Japan, for manufacture of motor vehicles under license agreement by using the technology provided by M/s SMC, have to provide the visiting personnel of Suzuki Motor Corporation with first class furnished western style house with all the necessary furniture, telephone, water supply, cooking facilities, gas supply etc. It is in pursuance of this clause in the agreement that the appellant rented some accommodation for the visiting personnel of M/s SMC, and also received outdoor catering service and housekeeping service.

++ While the Department has permitted CENVAT credit of service tax paid on the rental for the houses, the CENVAT credit of the service tax paid on the house keeping services and outdoor catering services received has been disallowed on the ground that the agreement itself categorized them as "welfare".

++ In our view, just because the agreement mentions these activities as "welfare", the same do not become welfare activities, as from the language of the agreement, it is clear that it is an obligation of the appellant company to provide each visiting personnel of M/s SMC, Japan, with furnished western style house with all the facilities including cooking facility. Therefore, in our prima facie view, these services would be covered by the "activities relating to business" as these activities have nexus with the manufacturing business of the appellant.

++ For categorizing a service as 'input service' covered by Rule 2(l) of CENVAT Credit Rules, 2004, what is relevant is as to whether it has nexus with the manufacturing business of the appellant in contrast to the nexus with the manufacture of the final product in case of 'Input'. [Ultratech Cement vs. CCE - 2010-TIOL-745-HC-MUM-ST refers]

Holding that the judgment in Manikgarh Cement is not applicable to the facts of the present case and that prima facie the order denying the CENVAT credit in respect of outdoor catering services and housekeeping service is not correct, the Bench waived the requirement of pre-deposit and granted a stay in the matter.

The stay applications were allowed.

(See 2015-TIOL-376-CESTAT-DEL)