Bus Transportation Charges Incurred by Employer for Employee Commute to Factory Not an Input Service; No Cenvat Credit Available: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai bench has held that “bus transportation charges” paid by an employer to transport its employees to the workplace do not qualify as an “input service”. Consequently, the employer is not entitled to claim Cenvat credit for the service tax paid on these charges.

The decision came in response to the Excise Appeal filed by M/s. BMS Industries Ltd. against the Commissioner of Central Goods and Services Tax (CGST), Thane.

The appeal arose from an order-in-appeal issued by the Commissioner (Appeals) rejecting the appellant’s appeal. The Commissioner had ruled that Rule 2(l)(B) of Cenvat Credit Rules, 2004, as amended, specifically excluded contracted or rented bus services from the scope of the definition of input service.

The appellant had engaged a service provider, M/s. Kenstar Transport, to provide bus transportation services for its employees during the period from April 2015 to December 2016. The service provider invoiced the appellant for these services, which included service tax paid under the Reverse Charge Mechanism (RCM). The appellant subsequently claimed Cenvat credit on this service tax.

However, the revenue contended that the Cenvat credit was wrongly claimed, and a show cause notice (SCN) was issued to recover the inadmissible credit amount and the same was ordered to be recovered along with interest and penalty. The appellant company then filed an appeal, which was dismissed by the Commissioner (Appeals).

The main issue revolved around the admissibility of Cenvat credit on “Bus Transportation Charges” under Rule 2(l) of Cenvat Credit Rules, 2004, as amended, specifically Rule 2(l)(B). The CESTAT examined whether such charges constituted an input service, allowing for Cenvat credit.

The appellant assessee, represented by Kiran Chavan argued that they should be allowed to claim Cenvat credit on the service tax paid for bus transportation charges. They contended that several tribunal decisions supported their claim that such services should be considered an eligible input service even after the 2011 amendment to Rule 2(l) of the Cenvat Credit Rules, 2004.

The respondent revenue, represented by P K Acharya, contended that the appellant was not entitled to avail Cenvat credit for bus transportation charges. They argued that the 2011 amendment expressly excluded rented or contracted bus services from the definition of input service.

The Revenue asserted that the transportation of employees for commuting to the factory was a personal service and did not qualify as an eligible input service after the amendment.

The bench cited the decision of the High Court of Bombay in the case of Solar Industries India Ltd. vs. CCE, C & ST, Nagpur (2022), which had substantial similarities with the present case wherein it was held that the transportation of employees from their designated pick-up points to the workplace via bus did not qualify as an activity integral to the manufacturing process and was merely for the personal convenience of employees. Therefore, it did not meet the criteria for being categorised as an “input service” after the amendment in Rule 2(l)(B) on April 1, 2011.

The CESTAT noted that the decision in the Solar Industries case was binding and decisive for the present appeal emphasising that the bus transportation service provided by the appellant was primarily for the personal use and convenience of its employees and did not contribute to the manufacturing activity.

The single bench of Mr. Ajay Sharma (Judicial Member) held that the services involving the transportation of employees, especially those not directly related to the manufacturing process, do not qualify for Cenvat credit under the amended rules.

In result, the appeal filed by the appellant was dismissed and the order of the Commissioner (appeals) was upheld.

To Read the full text of the Order CLICK HERE

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