Out-Door Catering Services Used For Personal Use Excluded From 'Input Service' As Per Cenvat Credit Rules: Supreme Court

Upholding the ruling of the Karnataka High Court denying the input tax credit to Toyota Kirloskar Motor Pvt Ltd. for availing outdoor catering services (for personal use), the Supreme Court has affirmed that such a service is excluded from input service as per CENVAT Credit Rules 2004 post-April 1, 2011.

Referring to Rule 2(1) of CENVAT Credit Rules 2004, which defines "Input Service", the Bench of Justice M. R. Shah and Justice B. V. Nagarathna observed thus:

"...post 01.04.2011...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"

The background of the case

The Company had established a canteen in the premises of its Factory as per the mandate of the Factories Act, 1948 and it was availing the outdoor catering services of one Sodexho Food Solutions Private Limited.

During the period of April 2011 to September 2011, the appellant company paid service tax of Rs. 37,53,952/- to the service provider i.e., Sodexho Food Solutions Private Limited, and thereafter, took CENVET credit of service tax of Rs.37,53,952/- as a credit on 'input service' as defined under Rule 2(1) of the Cenvat Credit Rules.

Against this backdrop, the Central Tax Department issued a show-cause notice to the Company on April 23, 2012, wherein it was alleged that outdoor catering services were not eligible for input services as being excluded vide Rule 2(I)(c) of the Cenvat Credit Rules.

Thereafter, the adjudicating authority passed an order in April 2013, confirming the demand of 37,53,952/- with interest and also imposed a penalty of Rs. 5 lakhs on the appellant company under Section 11AC r/w Rule 15(1) of the Cenvat Credit Rules, 2004.

In these circumstances, the Appellant company preferred an appeal before the Commissioner (Appeals), Bengaluru, justifying its stand to take credit on 'input service' as defined under Rule 2(1) of the Cenvat Credit Rules for outdoor catering services.

However, the said appeal was rejected and thereafter, the appellant company moved to the CESTAT/Tribunal, which also dismissed the appeal.

Further, when the Karnataka High Court, too, upheld the view taken by the Tribunal [CESTAT (Central Excise & Service Tax Appellate Tribunal, South Zonal Bench), Bangalore], the appellant company-Toyota Kirloskar Motor Pvt Ltd. moved the Supreme Court against the final judgment and order of the Karnataka High Court.

Karnataka High Court's order

Perusing the definition of 'input service' prior to the amendment and post amendment (made on April 1, 2011), the Karnataka High Court had noted that prior to April 1, 2011, outdoor catering services were covered under the definition of the 'input service'.

However, the Court further noted, after the amendment came into force in the light of specific exclusion clause, 'outdoor catering' service was not at all covered under the definition of 'input service'

In view of this, the Karnataka High Court upheld the order of the Tribunal [CESTAT (Central Excise & Service Tax Appellate Tribunal, South Zonal Bench), Bangalore],

Resultantly, the Karnataka High Court chose not to interfere with the order passed by the Tribunal, and the question of law was answered in favor of the revenue and against the assessee and the appeal was dismissed.

Case title - Toyota Kirloskar Motor Pvt Ltd. v. The Commissioner of Central Tax

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