Relief for Mahindra: CESTAT Rules CENVAT Credit on Factory Canteen Services Admissible Except for Employee-Recovered Amounts [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that Mahindra and Mahindra Ltd. was entitled to claim CENVAT credit on outdoor catering services provided at its factory canteen, except to the extent of cost recovered from employees.

The appellant, a manufacturer of tractors and related components, had availed CENVAT credit on outdoor catering services during the period October 2008 to August 2009. The credit was claimed on the basis of the Larger Bench ruling in CCE, Mumbai-V v. GTC Industries Ltd., which held that such services used for employee canteens were covered under the definition of "input service."

Read More: Customs’ Auction Materials Not as per T&C of Sale: Madras HCOrders Consideration of Bidder’s Refund Representation with Interest [Read Order]

The department issued two show cause notices demanding reversal of the credit, totaling Rs. 6,47,542, along with interest and penalties. The department claimed that catering services did not qualify as input services under Rule 2(l) of the CENVAT Credit Rules, 2004.

The Commissioner (Appeals) upheld the demand and penalties. Aggrieved by this decision, the appellant approached the CESTAT.

The appellant's counsel argued that the canteen was mandatory under the Factories Act and the credit was taken only after informing the department. They further submitted that the appellant had already reversed a large portion of the credit voluntarily, retaining only Rs. 27,905.

The counsel also presented CharteredAccountant certificates during the appeal to show that only Rs. 5,360 was recovered from employees and only that portion of the credit was inadmissible. The appellant relied on the Bombay High Court’s ruling in CCE v. Ultratech Cement Ltd., which allowed CENVAT credit on canteen services provided under statutory obligation, except to the extent recovered from workers.

Read More: Excise Dept Fails to Prove Clandestine TV Assembly at Warehouse:Supreme Court Upholds CESTAT Order Quashing Duty Demand [Read Judgement]

The revenue argued that the appellant had not produced evidence of bifurcation at the adjudication stage, and the entire credit was inadmissible. They argued that some amount was recovered from employees, so full denial of credit was justified.

The two-member bench comprising Justice DilipGupta, President (Judicial Member) and P. Anjani Kumar (Technical Member) disagreed with the department’s stand. It held that denial of the entire credit on the ground of missing bifurcation was not sustainable, especially when the appellant had produced CA certificates showing the actual recovery.

The tribunal also pointed out that the appellant had taken credit in good faith based on a prevailing Tribunal decision and had made voluntary reversals. It ruled that there was no suppression or deliberate misstatement.

The tribunal ruled that credit was rightly admissible on the portion of the catering service borne by the appellant, and only the amount recovered from employees was not eligible for credit. The tribunal modified the order passed by the Commissioner (Appeals) and directed the appellant to reverse only Rs. 5,360 along with interest. It set aside the remaining demand and penalties and allowed the appeal with consequential relief.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates