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The Commissioner of Central Excise, Customs & Service Tax, Ernakulam v/s M/s. Bharat Petroleum Corporation Ltd. Kochi Refinery, Ambalamugal, Represented by The Chief Finance Manager

Company & Directors' Information:- BHARAT PETROLEUM CORPORATION LIMITED [Active] CIN = L23220MH1952GOI008931

Company & Directors' Information:- A P REFINERY PRIVATE LIMITED [Active] CIN = U15143PB2003PTC026245

Company & Directors' Information:- B S AND SERVICE PRIVATE LIMITED [Active] CIN = U92419MH1946PTC004912

Company & Directors' Information:- A R C INDIA PETROLEUM PRIVATE LIMITED [Active] CIN = U11202TG2009PTC063249

Company & Directors' Information:- R N FINANCE LIMITED [Active] CIN = U74899DL1988PLC034289

Company & Directors' Information:- L N FINANCE PVT LTD [Active] CIN = U65929AS1992PTC003766

Company & Directors' Information:- N B A FINANCE LIMITED [Strike Off] CIN = U74899DL1993PLC052393

Company & Directors' Information:- T P D FINANCE LIMITED [Strike Off] CIN = U67120RJ1994PLC008051

Company & Directors' Information:- J V FINANCE PRIVATE LIMITED [Strike Off] CIN = U74899DL1985PTC067873

Company & Directors' Information:- S S D REFINERY PRIVATE LIMITED [Active] CIN = U51497MH1998PTC113736

Company & Directors' Information:- D B FINANCE PRIVATE LIMITED [Active] CIN = U65191TN1989PTC016705

Company & Directors' Information:- BHARAT FINANCE CORPN PVT LTD [Active] CIN = U65921DL1945PTC000910

Company & Directors' Information:- D A S FINANCE PVT LIMITED [Strike Off] CIN = U65921PB1993PTC012888

Company & Directors' Information:- S. F. FINANCE COMPANY PRIVATE LIMITED [Strike Off] CIN = U65921PB1996PTC018702

Company & Directors' Information:- Y B FINANCE PRIVATE LIMITED [Strike Off] CIN = U65921CH1996PTC017745

Company & Directors' Information:- S R PETROLEUM PRIVATE LIMITED [Strike Off] CIN = U23200MH1999PTC122909

Company & Directors' Information:- N. P. PETROLEUM LIMITED [Strike Off] CIN = U23201UP1995PLC018153

Company & Directors' Information:- R H PETROLEUM PRIVATE LIMITED [Active] CIN = U23209MH1996PTC101701

Company & Directors' Information:- FINANCE SERVICE PVT LTD [Strike Off] CIN = U65921DL1961PTC003460

Company & Directors' Information:- K S M PETROLEUM PRIVATE LIMITED [Active] CIN = U01120TZ1978PTC000800

Company & Directors' Information:- S B M FINANCE LIMITED [Strike Off] CIN = U65921PB1994PLC014374

Company & Directors' Information:- SERVICE CORPORATION LIMITED [Dissolved] CIN = U93090KL1946PLC001075

Company & Directors' Information:- D AND O FINANCE COMPANY PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC054788

Company & Directors' Information:- A. M. PETROLEUM PRIVATE LIMITED [Strike Off] CIN = U51524MH2014PTC255581

Company & Directors' Information:- S V S PETROLEUM PRIVATE LIMITED [Active] CIN = U51909DL2002PTC116940

Company & Directors' Information:- BHARAT CORPORATION PVT LTD [Strike Off] CIN = U74999CH1946PTC001103

Company & Directors' Information:- INDIA PETROLEUM COMPANY LIMITED [Dissolved] CIN = U99999MH1936PTC002453

    C.E. Appeal. No. 5 of 2016

    Decided On, 20 May 2020

    At, High Court of Kerala


    For the Appellant: John Varghese, Ramavarma Reghunathan Thamburan, SC. For the Respondent: P. Benny Thomas, M. Gopikrishnan Nambiar, K. John Mathai, Joson Manavalan, Kuryan Thomas, Raja Kannan, Advocates.

Judgment Text

T.R. Ravi, J.

1. This is an appeal filed by the Commissioner of Central Excise challenging the final order No.21672 of 2015 dated 22.07.2015 in Appeal No.E/1194/2010 on the file of the CESTAT, Bangalore. The respondent, a manufacturer of petroleum products had availed CENVAT credit of an amount of Rs.1,12,02,852/- being service tax, Rs.2,24,058/- being education cess and Rs.65,401/- being secondary and higher education cess, paid on canteen services to the employees. The above amounts were availed during the period October, 2008, December, 2008, February, 2009 and March, 2009. The case of the appellant is that the canteen service cannot be treated as an input service and hence the service tax attributable to such service cannot be utilised as input credit. Annexure A-1 is the show cause notice issued on 09.09.2009 to the respondent. After hearing the respondent, Annexure A2 order was passed by the Commissioner of Central Excise and Customs, whereby the input credit was disallowed and the amount was demanded towards duty on excisable goods cleared by the assessee utilising ineligible credit under Section 11A clause (2) of Central Excise Act, 1944. A penalty of Rs.1 lakh was also imposed. Annexure A-2 order was challenged by the respondent before the CESTAT in appeal. By Annexure A3 order dated 22.07.2015, the appeal was allowed by the CESTAT. The CESTAT relied on the decision of the High Court of Mumbai in Commissioner of Central Excise Ltd v. Ultratech Cement Ltd. reported in [2010 (20) STR 577 (Bom.)] to find that the respondent was entitled to the CENVAT credit.

2. The appellant contends that the outdoor catering services provided in the factory for staff/employees of the factory would not come within the ambit of the definition of 'input service' contained in Rule 2(l) of the CENVAT Credit Rules, 2004. Rule 2(l) of the CENVAT Credit Rules, 2004 reads thus:

"2 (a) xxxx xxxx xxxx xxxx

(b) xxxx xxxx xxxx xxxx

(l). "input service" means any service,-

"(i) used by a provider of taxable service for providing an output service; or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, upto the place of removal,

and includes services used in relation to setting up, modernization, renovation, repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.".

3. A mere reading of the Rule shows that a very wide meaning has been intended by the Rule making authority, to the word 'input service'. The Larger Bench of the CESTAT had in its judgment dated 25.09.2008 in CCE v. GTC Industries Ltd. reported in [2008 (12) STR 468] considered the above issue in detail and held that the term "used in relation to activities relating to business" is very wide in scope and application and what is stated within the definition are only illustrative activities and not exhaustive. After considering the context in which the Rules were issued, the Tribunal noted that in principle, credit of tax on those taxable services would be allowed, that go to form part of the assessable value on which excise duty is charged. The Tribunal considered the definition of "cost of production" and "Direct wages and salaries" contained in CAS-4 (Cost Accounting Standard issued by the Council of the Institute of Cost and Works Accountants of India), which reads thus;

"4.1. Cost of Production: Cost of production shall consist of Material Consumed, Direct Wages and Salaries, Direct Expenses, Works Overheads, Quality Control cost, Research and Development Cost, Packing cost, Administrative Overheads relating to production. To arrive at cost of production of goods dispatched for captive consumption, adjustment for Stock of work-in-Process, finished goods, recoveries for sales of scrap, wastage etc shall be made.

5.2. Direct wages and salaries: Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities. Direct wages and salaries include fringe benefits such as:

(i) Contribution to provident fund and ESIS

(ii) Bonus/ ex-gratia payment to employees

(iii) Provision for retirement benefits such as gratuity and superannuation

(iv) Medical benefits

(v) Subsidised food

(vi) Leave with pay and holiday payment

(vii) Leave encashment

(viii) Other allowances such as children’s education allowance, conveyance allowance which are payable to employees in the normal course of business etc."

Taking note of the above definition and the fact that canteen facility is mandatory under Section 46 of the Factories Act, 1948, in case of a factory having more than 250 workers, the Tribunal held that the outdoor catering service has to be considered as an input service relating to the business and CENVAT credit in respect of the same will be admissible.

4. In Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. reported in [2010 (2)) STR 577(Bom.)], a Division Bench of the High Court of Judicature at Bombay considered the very same issue and held that the decision of the Larger Bench of CESTAT referred above to the effect that credit of service tax would be allowable to the manufacturer is correct in law. However, the court held that the decision of the Larger Bench to the extent that such credit is available even in cases where the cost of the food is borne by the worker cannot be upheld, because, once the service tax is borne by the ultimate consumer of the service, namely, the worker, the manufacturer cannot take credit that part of the service to which is borne by the consumer. The Court concurred with an earlier Division Bench judgment of the High Court of Bombay in Coca Cola India Pvt. Ltd. v. CCC reported in [2009 (242) ELT 168 (Bom) and held thus;

"37. In the case of Coca Cola India Pvt. Ltd. (Supra) a Division Bench of this Court has considered scope of the expression "input service" as defined in Rule 2(l) of 2004 Rules. In that case, the question for consideration was, whether a manufacturer of non-alcoholic beverage bases (concentrates) is eligible to avail credit of service tax paid on advertisement, sales promotion, market research etc. The argument of the revenue in that case was that the advertisements are not relatable to the concentrate manufactured by Coca Cola India Pvt. Ltd. (supra) and hence, the credit in respect thereof cannot be allowed. Considering the Finance Minister's Budget Speech for 2004-05, press note issued by the Ministry of finance along with the Draft 2004 Rules and various decisions of the Apex Court, this Court held that the expression 'activities in relation to business' in the inclusive part of the definition of 'input service' further widens the scope of input service so as to cover all services used in the business of manufacturing the final products and that the said definition is not restricted to the services enumerated in the definition of input service itself. The Court rejected the contention of the revenue that a service to qualify as an input service must be used in or in relation to the manufacture of the final products and held that any service used in relation to the business of manufacturing the final product would be an eligible input service.

5. The High Courts of Gujarat and Karnataka have also taken a similar view in the decisions in Commissioner of Central Excise, Ahmedabad-I v. Ferromatik Milacron India Ltd. reported in [2011(21) STR 8 (Guj.)] and in Commissioner of Central Excise, Bangalore-III v. State of Toyotetsu India (P) Ltd. reported in [2011 (23) STR 444 (Kar.)]. Subsequently, the High Court of Madras has in Commissioner of Central Excise, Chennai-II, Commissionerate v. M/s Britannia Industries and another reported in [2015 SCC OnLine (Mad) 6938] relied on the decision of the Larger Bench of the Tribunal and the decision of the Bom

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bay High Court in CCE v. Ultratech Cement Ltd. referred above and concurred with the decision of the Bombay High Court. 6. The counsel for the respondent brought to our notice that Civil Appeal, C.A.No.6032 of 2012 filed challenging the judgment in Coca Cola India Pvt. Ltd.'s case (supra) has been dismissed as not pressed. However, on going through the order of the Hon'ble Supreme Court in the above Civil Appeal, we find that the same has been dismissed as not pressed on the ground of low tax effect. 7. We are in respectful agreement with the decisions of the Division Benches of the Bombay, Gujarat, Karnataka and Madras High Courts and we do not find any reason to restrict the definition of 'input services' in any manner. The decision of the CESTAT which has been impugned does not call for any interference. The appeal is hence dismissed. In the circumstances of the case, there will be no order as to costs.