Solar Industries India Limited Vs Commissioner (Supreme Court of India)
Factual Background
Solar Industries India Limited (the appellant) manufactures explosives at factory premises in Mouza Chakdoh and Bazargaon, District Nagpur, located approximately 40 km from Nagpur City. To enable its workers to reach the facility, the appellant hired buses from Hansa Travels to pick up employees from designated spots in Nagpur and transport them to the factory. Hansa Travels levied service tax under the service operator category, which the appellant paid and subsequently claimed as CENVAT Credit.
Read HC Judgment in this case: Bombay HC Disallows CENVAT Credit on Employee Bus Transportation Services
Proceedings Before the High Court
The Adjudicating Authority issued eleven show-cause notices covering the period from July 2009 to December 2015. While credit was permitted for July 2009 to March 2011, the Adjudicating Authority issued an order on 28.12.2016 disallowing CENVAT Credit for the period from 01.04.2011 to 31.12.2015, ordering recovery with interest under Rule 14 and imposing a penalty under Rule 15 of the CENVAT Credit Rules, 2004 (the Rules). This was based on the 01.04.2011 amendment to the definition of “input service” in Rule 2(l), which excluded services used primarily for personal use or consumption of employees.
The Commissioner (Appeals) partly allowed the appellant’s appeal on 28.11.2017 by reducing the penalty while upholding the disallowance. On 23.05.2018, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the penalty entirely but sustained the disallowance of CENVAT Credit.
The appellant filed Central Excise Appeal No. 12/2019 before the High Court of Judicature at Bombay under Section 35(G) of the Central Excise Tariff Act, 1985.
Key Legal Issues
The substantial questions of law before the High Court concerned:
- Whether excluding services under Clause (C) or Clause (B) of Rule 2(l) of the CENVAT Credit Rules, 2004 includes bus transportation of employees to deny CENVAT Credit to manufacturers.
- Whether providing bus transportation constitutes a service for the personal use or consumption of employees.
- Whether expenses incurred for employee bus transport—factored into the final product’s price—form a component leading to manufacturing activity entitling the manufacturer to CENVAT Credit.
- Whether a service recipient can claim CENVAT Credit for service tax charged on motor vehicle renting under Rule 2(l)(B).
High Court Reasoning and Ruling
The High Court held that following the 01.04.2011 amendment to Rule 2(l) of the Rules, rent-a-cab/motor vehicle renting services used primarily for personal use or consumption were excluded from “input service.” Transporting employees over 40 km is not part of manufacturing activity; it is a personal convenience enabling employees to reach factory premises. Distinguishing the appellant’s cited precedents, the High Court held that CESTAT committed no error in disallowing CENVAT Credit post-01.04.2011. The High Court answered the substantial questions of law against the appellant and dismissed Central Excise Appeal No. 12/2019.
Challenge Before the Supreme Court
Aggrieved by the High Court’s ruling, the appellant filed a Special Leave Petition before the Supreme Court of India.
Principal Submissions/Questions & Supreme Court Reasoning
The central issue before the Supreme Court was whether employee transportation services constitute an “input service” eligible for CENVAT Credit/Input Tax Credit.
After condoning delay, the Supreme Court held that providing transportation service to employees cannot be said to be an “input service” because it has nothing to do with the manufacture of goods. The Supreme Court concluded that the High Court committed no error in denying input tax credit and holding that such service stands excluded from the scope of “input service.” The Supreme Court expressed complete agreement with the view taken by the High Court.
Final Ruling & Effect of Decision
The Supreme Court dismissed the Special Leave Petition and disposed of all pending applications. The decision affirmed and left undisturbed the High Court’s judgment upholding the disallowance of CENVAT Credit for employee transportation services post-01.04.2011.
Cases Discussed
- Toyota Kirloskar Motor Private Limited v. The Commissioner of Central Tax (Karnataka High Court), CEA No.36/2018 with CEA No.7/2019 [Upheld by Supreme Court in SLP(C) No. 17903/2021]
- Kalyani Maxion Wheels Ltd. v. Commissioner of Central Excise, Pune-II (CESTAT), 2019 (366) ELT 918
- C.C.E. and S.T., Mangalore v. Mangalore Refinery and Petrochemicals Ltd. (Karnataka High Court), 2016 (42) STR 6
- The Principal Commissioner v. M/s. Essar Oil Limited (Gujarat High Court), Tax Appeal No. 939/2015
- Commissioner of Central Excise and Service Tax v. M/s. Turbo Energy Ltd. (Madras High Court), C.M.A. No. 157/2010
- Commissioner of Central Excise v. M/s. Stezen Toyotetsu India (P) Ltd. (Karnataka High Court), 2011 (23) STR 444
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
Providing transportation service to the employees cannot be said to be “input service” as it has nothing to do with the manufacture of the goods.
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 the input service.
We are in complete agreement with the view taken by the High Court.
The Special Leave Petition stands dismissed.
Pending applications stand disposed of.
