Supreme Court denies ITC for availing Outdoor Catering Services to Employees [Read Order]

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In a setback to Toyota Kirloskar Motor Pvt Ltd, the Supreme Court denied the Input Tax Credit (ITC) for availing outdoor catering services to employees.

For providing food and beverages the appellant, Toyota Kirloskar Motor Pvt Ltd engaged the services of outdoor catering viz., Sodexho Food Solutions Private Limited to render taxable services of outdoor catering to the appellant by supplying services inside the canteen facility and raised bills/invoices by charging applicable rate of service tax. The service being an eligible ‘input service’ for the manufacturing, in terms of Rule 2(l) of the Cenvat Credit Rules, 2004, the appellant is availing the cenvat credit of the same and utilized the said credit towards duty payable on the final products manufactured by the appellant. The appellant has taken cenvat credit of service tax paid under the category of ‘outdoor catering’ service since September 2004 till April 2011 i.e., till the amendment was made to Cenvat Credit Rules, 2004.

The Karnataka High Court held that the period involved in the present appeal is admittedly of post-2011 period and after the amendment to the provisions of Rule 2(l) defining the ‘input service’ and the amendment to the provision of Rule 2(l) defining the ‘input service’ came into effect w.e.f., 1.4.2011. The definition of ‘input service’ post amendment contains exclusion clause and exclusion clause was effected w.e.f., 1.4.2011. Clause (c) of the said exclusion clause specifically excludes the services provided in relation to ‘outdoor catering services. It is certainly not in dispute that said services prior to 1.4.2011 have been held to be covered by the definition of ‘input service’, however, after the amendment came into force in the light of specific exclusion clause, ‘outdoor catering’ service is not at all covered under the definition of ‘input service’. 

The division bench of Justice M.R.Shah and Justice B.V.Nagarathna held that The statutory provision – Rule 2(1) defining “Input Service” post 01.04.2011 is very clear and the out-door catering services when such services are used primarily for personal use or consumption of any employee is held to be excluded from the definition of “Input Service”. In that view of the matter, it cannot be said that the High Court has committed any error in denying the input tax credit and holding that such a service is excluded from input service.

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