2009-TIOL-697-CESTAT-BANG

IN THE C USTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL

SOUTH ZONAL BENCH AT BANGALORE

Appeal No.E/233 to 236/2008

(Arising out of Orders-in-Appeal No: 132/2007 dated 17.12.2007; (ii) OIA No.133 &
134/2007 dt.17.12.2007 &
(iii) OIA No.128/2007 dt.24.12.2007 passed by the Commissioner of Central Excise
(Appeals-II), Bangalore)

Date of Hearing: 15.12.2008

Date of decision: 31.12.2008

M/s STANZEN TOYOTETSU INDIA PRIVATE LIMITED

Vs

COMMISSIONER OF CENTRAL EXCISE, BANGALORE-III COMMISSIONERATE,

BANGALORE

Appellant Rep by: Shri N. Anand, Advocate

Respondent Rep by: Mrs. Sudha Koka, SDR

CORAM: SHRI T.K. JAYARAMAN, MEMBER (TECHNICAL)

SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL)

Service tax – Services for canteen, transportation and group health

insurance for employees are input services – Cost incurred forming part of
cost of production as per CAS-4 – Tax paid thereon available as credit –
Impugned orders set aside

Appeal allowed with consequential relief

Case laws referred:

Victor Gaskets India Ltd. vs. CCE, Pune-I [2008 (10) STR 369] = 2008-TIOL-409-
CESTAT-MUM

CCE, Nasik vs. Cable Corporation of India Ltd. [2008 (87) RLT 783 (CESTAT-Mum.)]
= 2008-TIOL-1180-CESTAT-MUM

CCE, Mumbai-V vs. GTC Industries Ltd. [2008 (89) RLT 197 (CESTAT-LB)] = 2008-
TIOL-1634-CESTAT-MUM-LB

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Appeal No.E/233 to
236/2008
Union of India vs. Hansoli Devi [2007(7) SCC
273]

FINAL ORDER Nos.1419 & 1422/2008

Per: M.V. Ravindran:

All these four appeals are directed against Orders-in-Appeal No.132/2007

dt.17.12.2007; OIA No.133 & 134/2007 dt.17.12.2007 & OIA No.128/2007
dt.24.12.2007 passed by the Commissioner of Central Excise (Appeals-II) Bangalore.
Since all these appeals are in respect of the same assessee and issue being the
same, they are being disposed off by a common order.

2. The relevant fact that arise for consideration are the appellant herein availed input
stage credit of the Service Tax amount paid by the service provider of Canteen
Services, Rent-a-Cab Services and on the Group Health Insurance Services. The
appellant claims that the canteen services, transportation charges for transportation
of their employees and the Group Insurance Health Policy for which they have paid
Service Tax to the service providers, is in or in relation to the manufacturing activity.
Both the lower authorities have held that the appellants are not eligible to avail the
credit of Service Tax paid by the Service Provider and confirmed the demand and
also imposed penalty besides directing the appellants to pay interest. Hence, these
appeals.

3. The learned advocate appearing on behalf of the appellant submits that the
confirmation of the demand and Education Cess; directing to pay interest and
imposing penalties, is irregular and incorrect. It is his submission that during the
period December 2006 to March 2007, the appellant availed the services of outdoor
catering services for providing food to their employees in the factory premises. It is
his submission that the said services are provided to the employees who are part
and parcel of the manufacturing activity. As regards the Service Tax paid by the
service provider for transportation of the employees, it is his submission that it is
also in relation to the employees who are part and parcel of the manufacturing
activity. He would rely upon the decision of the Tribunal in the case of Victor Gaskets
India Ltd. Vs. CCE, Pune-I as reported in 2008 (10) STR 369 = 2008-TIOL-409-CESTAT-
MUM and CCE, Nasik Vs. Cable Corporation of India Ltd. – 2008 (87) RLT 783
(CESTAT -Mum.) = 2008-TIOL-1180-CESTAT-MUM for these submissions.

4. The learned SDR would submit that the input stage credit on the outdoor catering
services and transportation charges and group insurance policy can never be, by any
stretch of imagination considered as input services. It is her submission that the
assessee has provided these canteen services and transportation facilities and group
insurance health policy as a welfare measure for its employees and in the
background of effective management of the business. This cannot be equated that
these activities are in or in relation to the manufacturing activity. She reiterates the
findings of the Commissioner (A).

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5. We have considered the submissions made at length by both sides and perused
the records. It is undisputed that the appellant is a manufacturer and the canteen
services and the transportation of the employees and group health insurance policy
are all related to the employees who are working in the factory premises.

5.1. As regards the credit of Service Tax paid by catering service provider, we find
that the Larger Bench of the Tribunal in the case of CCE, Mumbai-V Vs. GTC
Industries Ltd. – 2008 (89) RLT 197 (CESTAT -LB) = 2008-TIOL-1634-CESTAT-MUM-LB has
clearly held that the Service Tax paid by the outdoor catering services is eligible for
availment as an input stage credit. We may read the ratio:

“9. We have considered the submissions. We find that it is well settled that every
clause of the Statute should be construed with reference to the context in which it is
issued. A bare mechanical interpretation of words and application of legislative intent
is devoid of concept and purpose will reduce most of the remedial and beneficial
legislations to futility. To be literal in meaning is to see the skin and miss the soul.
The legislature never wastes its words or say anything in vain and a construction
which attributes redundancy to legislation will not be accepted, as has been observed
by the Supreme Court in the case of Union of India Vs. Hansoli Devi – 2007(7) SCC
273. A similar observation was made by the Apex Court in the case of Peerless
Finance (supra) referred to by the Ld. Jt. CDR that the word “include” is very
generally used in interpretation clauses in order to enlarge the meaning of words or
phrases occurring in the body of the statute; and when it is so used these words or
phrases must be construed as comprehending, not only such things as they signify
according to their natural import, but also those things which the interpretation
clause declares that they shall include. But the word “include” is susceptible of
another construction, which may become imperative, if the context of the Act is
sufficient to show that it was not merely employed for the purpose of adding to the
natural significance of the words or expressions defined. It may be equivalent to
“mean and include”, and in that case it may afford an exhaustive explanation of the
meaning which, for the purposes of the Act, must invariably be attached to these
words or expressions. The context in which and the purpose for which the credit
rules have been issued are clear from the press note dated August 12, 2004 issued
by the Ministry of Finance, prior to introduction of the credit rules wherein the draft
rules were circulated for inviting comments from trade and industry. This note clearly
states that “In principle, credit of tax on those taxable services would be allowed that
go to form a part of the assessable value on which excise duty is charged”. Expenses
towards the canteen and provision of subsidized canteen forms part of the cost of
production as is evident from the Para 4.1 of the CAS-4 which defines the phrase
“Cost of production”, and under the head Direct Wages and Salaries, subsidized food
has also been considered as part of direct wages and salaries being fringe benefits.
The relevant part of 4.1 and 5.2 of CAS-4 are reproduced as under:

“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-Progress, finished goods, recoveries
for sales of scrap, wastage etc., shall be made.”

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“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 provide fund and ESIS

(ii) Bonus/Ex-gratia payment to employees

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

(iv) Medical benefits

(v) Subsidized 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.

The above paras of CAS-4 clearly shows that cost of subsidized food is included in
the cost of production. We further note that in case of a factory having more than
250 workers under Sec.46 of the Factories Act, 1948, it is mandatory on the part of
the factories to provide a canteen facility within the factory premises and failure to
comply with the provisions of Sec. 46 attracts prosecution and penalty under Sec.92
of the Factories Act, 1948. A service tax on outdoor catering services is paid by the
manufacturer for running the canteen, irrespective of the fact that a subsidized food
is provided or not. Whether the cost of food is borne by the worker or by the factory,
the same will form part of expenditure incurred by the manufacturer and will have a
bearing on the cost of production. In view of the same, employment of outdoor
caterer for providing catering services has to be considered as an input service
relating to the business and cenvat credit in respect of the same will be admissible.
We, therefore concur with the views of the Tribunal expressed in the case of Victor
Gaskets India Ltd. and Others – 2008 (85) RLT 801 (CESTAT -Mum.) = 2008 (10)
STR 369 (Tri.-Mumbai) = 2008-TIOL-409-CESTAT-MUM. The reference is answered
accordingly and the matter is sent back to referral Bench for passing appropriate
orders.”

5.2 As regards the Service Tax paid on the transportation of the employees, we find
that the Tribunal in the case of CCE Vs. Cable Corporation of India Ltd.(supra) held
as follows:

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“7. I find that input services has been defined under Rule 2(1) of Cenvat Credit
Rules, 2004 which is reproduced as below:-

“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 from the place of
removal,

and includes services used in relation to setting up, modernization, renovation or

repairs of a factory, premises of provider of output service or an office relating to
such factory of premises, advertisement or sales promotion, market research,
storage upto the place of removal, procureme nt 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.”

From the above definition it is very clear that the input services besides being used
in or in relation to the manufacture of final products and clearance of final products
from the place of removal includes a plethora of other services such as service used
in relation to setting up, modernization, renovation or repairs of factory, premises of
provider of input service or an office relating to such factory or premises,
advertisement or sales, activities of business, accounting, auditing, financing,
recruitment, quality control, training and coaching etc. and therefore its scope is
much larger than being, used directly or indirectly in relation to manufacture. The
decision cited by Revenue are therefore not relevant as those decision under Rule
2(1) of Cenvat Credit Rules and these decisions have only considered the term in or
in relation to the manufacture. Since Rent-a-Cab service is used for bringing
employees to work in the factory for manufacture of goods it has to be considered as
being used indirectly in relation to the manufacture or as part of business activity for
promoting the business as any facility given to the employees will result in greater
efficiency and promotion of business.”

5.3 We find that the question of input stage credit on the group insurance health
policy for the employees/workers of the appellant would also fall under the same
category as per the law decided by the Tribunal in the above two cases.

5.4. Accordingly, we are of the considered view that the ratio as reproduced by us
herein above of the decisions of the Tribunal will squarely cover the issue in favour of
the appellant. Accordingly, the impugned orders are set aside and all the appeals are
allowed with consequential relief, if any.

(Pronounced in open Court on 31/12/2008)

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