SKP Tax Alert
31 December 2014 | Volume 7 Issue 17
Outdoor catering services availed for business purposes is eligible for CENVAT credit

Background
This is with regards to recent judgment delivered by the Mumbai Tribunal in the case of M/s Hindustan Coca Cola Beverages Pvt Ltd. (Appellant) versus Commissioner of Central Excise, Nashik 2014 (12) TMI 596 - CESTAT MUMBAI wherein it was held that service tax paid on Outdoor Catering Services availed for business purpose is eligible for CENVAT credit for the period December 2011 to December 2012.
 
Facts in brief

1. The Appellant had availed CENVAT credit on outdoor catering services for the period December 2011 to December 2012; however this was denied by the lower authorities on grounds that any input service used for personal use or consumption by any employee is not eligible for credit w.e.f. 01 April 2011. This restriction is introduced through the amended definition of input service effective from 01 April 2011. The amendment, is inserted under  the segment which talks about what needs to be excluded form 'input services'. It is expressed in clause  (C ) of this definition as  mentioned below:
'Input service means any service, -.....
But excludes
(A)    ...
(B)    ...
(BA)   ...
(C )     such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee'


2. The appellant argued that in the instant case outdoor catering service is used in relation to carrying out the business of manufacturing excisable goods and not for personal use of the employees. Furthermore, the credit is claimed only to the extent of the cost of such expenses borne by the Company, and not recovered from the employees.

3.Reliance was placed on` Circular No. 943/4/2011-CX., dated 29 April 2011 wherein it was clarified that outdoor catering service is per se not an ineligible input service but it is not eligible for credit only when it is used for personal use or consumption of any employee or a sub-group of employees.

4.Also the decision given by the Bombay High Court in the case of Coca Cola (I) Put.Ltd. vs. CCE, Pune -III reported in 2009 (15) STR 657 ( Bom .) was referred; where it was held that the input service forming part of the cost of manufacturing will be entitled for credit (The decision referred to is for the period prior to 01 April 2011 when input service included all services in relation to business activity). 

The ruling
On the basis of the contentions of the appellant, the tribunal held that:


1.The Government by issuing the budget clarification or subsequent circular has clarified that service which is meant for personal use or consumption by an employee or the cost of which is included as part of the salary of the employee as a cost to company basis is not eligible.

2.Outdoor catering service is used in relation to business activities of the Appellant and the service is used by all employees in general. The costs of these input services are admittedly borne by the company and not by the employee and forms part of the cost of the final product.
Accordingly the appellant has rightly claimed CENVAT credit on outdoor catering services.
SKP's Comments
Service tax paid on outdoor catering, would be eligible for CENVAT credit provided that the service is used by the company for business purposes.  By which we mean that such costs incurred should form part of the cost of final product sold, leviable to excise duty or forms part of the gross amount charged for arriving at the value of output service provided for levy of service tax.
 
Further the expense incurred should not be borne/ reimbursed from the employee; evidence can be sought from the treatment followed by the company to record such expense in its books.
 
Accordingly if a business has incurred outdoor catering expenses, then the treatment given for claiming credit needs to be evaluated.
 
Therefore, in light of the recent judgement and the provisions of CENVAT credit, it is imperative that a business undertakes a review of its entire credit and accordingly decides the treatment for claim of credit.

SKP
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