Bombay HC disallows Cenvat Credit as Bus Transport Services was mere Personal Service to Employees [Read Order]

The Bombay High Court disallowed the Cenvat Credit as bus transport services were mere personal service to employees.

The appellant, Solar Industries India Limited carries out manufacturing activities of explosives at Mouza Chakdoh and Bazargaon, Taluka and District Nagpur. The said factory where the manufacturing activity is carried out is at a distance of about 40 kms. from the City of Nagpur and the appellant with a view to provide facility to its employees hired a bus through one Hansa Travels to pick up its employees from a designated spot in Nagpur for dropping them at the factory situated at a distance of about 40 kms. Hansa Travels being service provider levied service tax in the category of service operator and the appellant after paying service tax has thereafter sought to avail cenvat credit in that regard.

Mr. Gopal Sawal, learned counsel for the appellant submitted that the Authorities erred in holding that the appellant was not entitled to cenvat credit after 01.04.2011. Rule 2(1) of the said Rules had been misinterpreted ignoring the fact that the provision of transportation facilities to the employees from the designated place at Nagpur to the factory premises had a direct nexus with the manufacturing activity of the appellant. The services were not for any personal use or consumption of any employee but was on account of the need of the manufacturing activity of the appellant. If such a facility was not provided, the manufacturing activity would have been hampered and was thus a basic necessity for the appellant.

Mr. S.N.Bhattad, counsel for the respondent on the other hand submitted that the Authorities were justified in disallowing the cenvat credit from 01.04.2011 onwards. According to him, input service was restricted to activities or movement within the factory premises and transportation of employees from a distance of 40 kms for reaching the factory premises had no relation with the manufacturing activity. Inviting attention to Clause (B) in Rule 2(1) of the said Rules it was submitted that the provision of service of transportation of employees from their residence to the factory premises was not covered by the term “input service”.

The division bench of Justice G.A.Sanap and Justice A.S.Chandurkar found that the Tribunal did not commit any error whatsoever in disallowing cenvat credit to the appellant after 01.04.2011 in view of the amended provisions. The service provided was mere in the nature of personal service to its employees which is not permitted to be treated as “input service”.

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