The Mumbai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) has ruled that no CENVAT credit is admissible on the service tax paid for hospitality and management services provided in an employee residential colony.
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. 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 to service tax on hospitality and management services at the employees’ residential colony.
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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.
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, and 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.
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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.
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.
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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.
The Tribunal noted that the Karnataka High Court’s rulings supported the appellant’s claim for Cenvat credit of ₹10,63,186 for employee transportation. However, regarding the hospitality and management services, the Tribunal agreed with the revenue’s position, concluding that the ruling from the Bombay High Court prevails and denied the appellant the Cenvat credit of ₹20,73,220.
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The single bench, presided over by Anil G. Shakkarwar, determined that the appellant is ineligible for Cenvat credit for service tax on insurance premiums post-March 1, 2008, and also for the hospitality-related service tax. Nevertheless, the bench instructed the appellant to pay interest on the inadmissible Cenvat credit while setting aside the imposed penalties, stating that the matters pertained to statutory interpretation. 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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