By TIOL News Service

MUMBAI, JUNE 14, 2016: AN application for Rectification of Mistake has been filed by the Revenue against Order no. A/85555/16/SMB dated 4.2.2016.

We reported this order as citation 2016-TIOL-708-CESTAT-MUM thus -

CX - CENVAT - Membership of business club like Entrepreneur Organisations is indirectly related to the promotion of business of the appellant - such expenses incurred are also forming part of the Assessable value - Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product as held by the Bombay High Court in the case of Coca Cola P. Ltd. -   2009-TIOL-449-HC-MUM-ST   - Therefore, expenses incurred on the membership of the business club is an "Input Service" and appellant can legally take CENVAT credit of the expenses incurred on the membership of the club - Order set aside and appeal allowed with consequential relief: CESTAT [para 10]

As mentioned, Revenue has filed a ROM on the following grounds:-

"Hon'ble Bench has not considered the point which was submitted by the Assistant Commissioner (AR) during the hearing that the said expenses of Rs.7,65,206/- paid towards Club membership of the Director is clubbed under the Schedule 17 of the Profit & Loss Account under the head "Staff Welfare Expenses" which was certified by the Cost Accountant vide the Certificate dated 24.09.2010."

The AR argued that the expense of the membership of the club has been booked under the head of "Staff Welfare Expenses" and, therefore, credit should not be allowed. Inasmuch as it cannot be said that the expenditure under the head "Staff Welfare Expenses" will have any nexus with the manufacture of goods. In support of his contention, the AR relied on the decision of the Bombay High Court in the case of Manikgarh Cement – 2010-TIOL-720-HC-MUM-ST, wherein it was observed:

"A welfare activity undertaken while carrying on the business and such an expenditure may be allowable under the Income Tax Act. However, to qualify as an input service, the activity must have nexus with the business of the assessee. The expression "relating to business" in Rule 2(l) of Cenvat Credit Rules, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities undertaken by the assessee."

The Bench observed –

"4. … I find that the only ground on which the rectification has been sought is that the expenditure undertaken on the services of Club Membership of the Director was booked under "Staff Welfare Expenses" under Schedule 17 of the Profit & Loss Account. I find that the order of the Tribunal is very clear in this regard and clearly holds that the membership of the Business club is indirect related to the promotion of business of the appellant. In view of this, it cannot be said that there is no nexus between the services availed and the manufacture of goods irrespective of the head under which the said expenses is booked in the Balance-sheet."

The ROM application filed by Revenue was dismissed.

(See 2016-TIOL-1417-CESTAT-MUM)