In a significant ruling, the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) in Mumbai addressed an appeal filed by Skoda Auto India Pvt Ltd against the Commissioner of Central Goods and Service Tax and Central Excise, concerning four show-cause notices that proposed the total denial of CENVAT credit amounting to Rs. 10, 63,186/-, which was availed on service tax paid for employee transportation services for pickup and drop-off between a convenient point and the factory.
The appellant, Skoda Auto India Pvt. Ltd, a manufacturer of excisable goods, specifically motor vehicles, is engaged in the Cenvat credit system under the Central Excise Tariff Act, 1985. Between April 2005 and August 2009, the appellant received three show cause notices proposing the denial of Cenvat credit amounting to ₹31, 60,453 on service tax paid for insurance premiums related to the outbound movement of final products. Notably, ₹25, 78,094 of this credit pertains to the fiscal years 2005-06 to 2007-08.
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Additionally, four notices issued for the period from 2007-08 to March 2011 proposed the denial of Cenvat credit totaling ₹10,63,186, claimed for employee transportation services. The appellant was also subject to six further show cause notices for the period from April 2007 to March 2011, proposing denial and recovery of ₹20, 73,220 related
These notices were adjudicated, concluding that the activities lacked a nexus to the manufacture of final products. Following various orders-in-original, the appellant appealed to the Commissioner (Appeals), who dismissed the appeals, thereby upholding the recovery of the aforementioned Cenvat credit amounts, including interest and equal penalties. The appellant has since brought the matter before the Tribunal.
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Mr. Anay Bhatti, representing the appellant, contended that the insurance coverage for the final product during transit from the factory to dealers mitigated the risk of loss or damage. He argued that prior to March 1, 2008, the Cenvat credit for outward transportation was valid, thus asserting that the service tax paid on related insurance premiums should be claimable. He cited the Supreme Court ruling in Commissioner of Central Excise, Belgaum vs. Vasavadatta Cements Ltd., asserting that Cenvat credit was permissible for service tax on outward transportation.
Regarding the service tax on employee transportation, Bhatti referenced the Karnataka High Court‘s decision in Commissioner of Central Excise, Bangalore-III vs. Stan En To Otetsu India (P) Ltd., which affirmed that providing transportation for employees is a business-related activity, thus qualifying for Cenvat credit. He also cited another ruling from the Karnataka High Court, reinforcing the position that such Cenvat credit is admissible.
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Furthermore, in relation to the Cenvat credit for hospitality and management services, he pointed to a ruling from the Andhra Pradesh High Court, which also recognized the admissibility of such credits for manufacturers.
Mr. Xavier Mascarenhas, representing the revenue, countered that the Cenvat credit on outbound transit insurance is inadmissible, citing the Supreme Court case Commissioner of Customs & Central Excise, Nagpur vs. Ispat Industries Ltd. and other Tribunal decisions. For the employee transportation Cenvat credit, he reiterated the Commissioner’s findings. He also contended that the ruling by the Bombay High Court in Commissioner of Central Excise, Nagpur vs. Manikgarh Cement is binding, declaring that while establishing employee colonies may serve as a welfare initiative, it does not constitute a business-related activity as per Rule 2(l) of Cenvat Credit Rules, 2004.
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The bench thoroughly reviewed the case records and submissions. It held that out of the CENVAT credit of ₹31,60,453, the appellant is entitled to avail CENVAT credit for the service tax paid on insurance premiums up to March 1, 2008. Regarding the CENVAT credit for service tax paid on transportation for employee pickup and drop services, the single bench of the tribunal, led by Anil G. Shakkarwar, referred to decisions by the Karnataka High Court in cases cited by the appellant’s counsel, such as Stan En To Otetsu India (P) Ltd. and Bell Ceramics Ltd.. These rulings classified such services as input services, and accordingly, the tribunal held that the appellant is entitled to CENVAT credit of ₹10, 63,186 for the disputed period, related to service tax paid on bus transportation used for employee transport.
Ultimately, allowed Cenvat credit of ₹10, 63,186 for employee transportation and directed the appellant to consult the jurisdictional Assistant Commissioner for the quantification of permissible Cenvat credit on transit insurance from the total amount claimed.
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