BMS Industries Ltd Vs Commissioner of CGST (CESTAT Mumbai)
Introduction: The CESTAT Mumbai recently issued a significant ruling in the case of BMS Industries Ltd Vs. Commissioner of CGST. The case revolved around the eligibility of cenvat credit for bus transportation charges incurred by the employer for employee commutes to the factory. The ruling sheds light on whether such charges constitute an input service under Rule 2(l) of the Cenvat Credit Rules, 2004, as amended. In this article, we will delve into the details of this ruling and its implications.
Detailed Analysis: Background and Dispute: The appellant, BMS Industries Ltd, is engaged in the manufacturing of excisable goods. During the period in question (April 2015 to December 2016), the company hired buses on a contract basis from a service provider to transport its employees from Kalyan station to their factory in Murbad and back after their shifts. The service provider invoiced the appellant, including service tax under reverse charge, which the appellant later claimed as cenvat credit, totaling Rs. 4,19,173/-. The department, however, contended that this credit was wrongly availed, leading to a show cause notice and an Order-in-Original confirming the inadmissible credit. On appeal, the Commissioner (Appeals) upheld the decision, which led to the appellant’s appeal to the CESTAT.
Key Arguments: The crux of the matter was whether, after an amendment in Rule 2(l) of the Cenvat Credit Rules, 2004, rented or contracted bus services were excluded from the definition of input service. The appellant argued that several decisions by different benches of the Tribunal supported the admissibility of cenvat credit for such services even after the amendment. They relied on these precedents to substantiate their claim.
Revenue’s Stand: The revenue authorities contended that the amended Rule 2(l) expressly excluded rented/contracted bus services from the definition of input service, making them ineligible for cenvat credit.
CESTAT’s Decision: The CESTAT examined both sides of the argument and took into consideration a recent decision by the Hon’ble High Court of Judicature at Bombay in a similar case. The High Court ruled that transportation of employees by bus, from designated pickup points to their workplace, primarily served personal convenience and did not constitute an activity within the scope of manufacturing activity. As a result, it could not be treated as an ‘input service’ after the amendment.
Conclusion: In line with the High Court’s decision and considering the amended definition of Rule 2(l), the CESTAT upheld the impugned order and dismissed the appellant’s appeal. This ruling reaffirms that bus transportation charges for employee commutes to a factory do not qualify as an input service for cenvat credit purposes.
In conclusion, this CESTAT Mumbai ruling clarifies the eligibility of cenvat credit for bus transportation charges incurred by employers. It underscores the importance of understanding the evolving definitions in tax regulations and staying compliant with current rules to avoid such disputes.
For businesses dealing with similar issues, it’s essential to stay updated on legal developments and seek professional advice to ensure compliance with tax regulations.
FULL TEXT OF THE CESTAT MUMBAI ORDER
The instant appeal has been filed from the impugned order dated 05.03.2019 passed by the Commissioner (Appeals) rejecting the appeal of the appellant by recording that Rule 2(l)(B) of Cenvat Credit Rules, 2004 (as amended) excluded contracted/rented bus service from the scope of definition of input service.
2. The issue involved herein is whether the credit of service tax paid on ‘Bus Transportation Charges’ being in the nature of Rent-a-cab service is admissible as input service under Rule 2(l), Cenvat Credit Rules, 2004 as amended or to put it more specific u/r. 2(l)(B) ibid?
3. The facts leading to the filing of this appeal are stated in brief as follows. The appellants are engaged in the manufacture of excisable goods. During the period in issue i.e. from April, 2015 to December, 2016 they hired bus on contract basis from a service provider viz. M/s. Kenstar Transport to pick up their employees from Kalyan station to their factory at Murbad and to drop them back after their duty gets over. The said service provider raised bill on the appellant which were paid by the appellant alongwith service tax under reverse charge as recipient of bus transport service. Later on they took cenvat credit of the same and during the period in issue total cenvat credit comes to Rs.4,19,173/-. According to department, the appellant has wrongly availed cenvat credit on this service and a show cause notice dated 2.5.2017 was issued to the appellant demanding the inadmissible credit amounting to Rs.4,20,173/- alongwith interest and penalty and the same is culminated into the Order-in-Original dated 8.5.2018 confirming the inadmissible credit of service tax amounting to Rs.4,19,173/- for the period from April, 2015 to March, 2016 & April, 2016 to December, 2016 and the same was ordered to be recovered alongwith interest and penalty of Rs.5,000/-. On appeal filed by the appellant, the same was dismissed by the learned Commissioner (Appeals) vide impugned order dated 19.2.2019.
4. Mainly the case of Revenue is that after the amendment in Rule 2(l) ibid w.e.f.1.4.2011 rented/contracted bus service has been expressly excluded from the definition of input service and the said service is no longer eligible for taking credit w.e.f. 1.4.2011.
5. I have heard learned counsel for the appellant and learned Authorised Representative for the Revenue and perused the case records including the synopsis/written submissions placed on record alongwith the case laws. Learned counsel submits that a consistent view has been taken by the Tribunal holding that credit of service tax paid under rent a cab service for hiring the bus transport is admissible even after the amendment has been made in Rule 2(l) ibid and in support of his submissions learned counsel placed reliance on the following decisions:- (i) M/s. Marvel Vinyls Ltd. CCE, Indore; 2016-TIOL-3071-Cestat-Delhi, (ii) CST, Pune vs. Nihilent Technologies; 2017-TIOL-2696-CESTAT-Mum., (iii) Modern Petrofils Dty Dev. Vs. CCE, Vadodara; 2017-TIOL-3896-CESTAT-AHM., (iv) Technocraft Industries India Ltd. vs. CCE, Thane; 2018-TIOL-1738-CESTAT-MUM., (v) Kansai Nerolac Paints Ltd. vs. CST, Mumbai; 2017- TIOL-4494-CESTAT-Mum., (vi) CCE & ST, Mangalore vs. Mangalore Refinery & Petrochemicals Ltd.; 2016(42) STR 6 (Kar.), (vii) M/s. Taj Sats Air Catering Ltd. vs. CCGST, Mumbai East; 2020-TIOL-206-CESTAT-Mum. and (viii) CST, Chennai vs. M/s. Chennai Container Terminal Pvt. Ld.; 2018-TIOL-2411-CESTAT-Mad. All the decisions except one, cited by the learned counsel have been passed by different benches of the Tribunal holding that in such a situation the credit is admissible even for the period after the amendment in Rule 2(l) ibid. Only one decision cited above i.e. Mangalore Refinery (supra) has been passed by the Hon’ble Karnataka High Court but in that matter the period involved is prior to amendment and therefore the same may not be relevant on the facts of the present case.
6. Per contra learned Authorised Representative on behalf of Revenue submits that the authorities below have rightly held that the appellant is not entitled for availment of cenvat credit on rent a cab service and in support of his submission learned Authorised Representative produced a recent decision of the Hon’ble High Court of Judicature at Bombay in the matter of Solar Industries India Ltd. vs. CCE, C & ST, Nagpur; 2022(60) GSTL 216 (Bom.). I have gone through the same and the relevant paragraphs of the said decision are reproduced hereunder:-
“This appeal under Section 35(G) of the Central Excise Tariff Act, 1985 has been admitted on the following substantial questions of law :
(I) Whether the exclusion as defined in Clause (C) to Rule 2(1) of Cenvat Credit Rules, 2004, which defines “input service”, includes transportation of employees by a manufacturer from their designated pick up points to their workplace, by Bus, so as to deny the benefit of Cenvat credit, to the Appellant/Manufacturer?
(II) Whether the services provided by a Manufacturer of transportation of its employees, from their designated pick up points to their workplace, by Bus, would amount to a service for personal use or consumption of any of the employees?
(III) Whether the activity of providing bus transport services to its employees, at the cost of the Manufacturer, to reach factory in time and the expenses incurred by the Manufacturer in providing such service, (which amount is taken into consideration, while determining the final price of the product) can be said to be a component leading to the manufacturing activity, so as to entitle the Manufacturer, the benefit of Cenvat credit?
(IV) Whether the recipient of services is entitled to claim Cenvat credit of Service Tax charged by Service Provider in respect of renting of motor vehicle, which is Capital Goods for Service Provider in view of Rule 2(1)(B) of Cenvat Credit Rules, 2004?
2. The facts in brief giving rise to this appeal are that it is the case of the appellant that it carries out manufacturing activities of explosives at Mouza Chakdoh and Bazargaon, Taluka and District Nagpur. The said factory where the manufacturing activity is carried out is at a distance of about 40 kms. from the City of Nagpur and the appellant with a view to provide facility to its employees hired a bus through one Hansa Travels to pick up its employees from a designated spot in Nagpur for dropping them at the factory situated at a distance of about 40 kms. Hansa Travels being service provider levied service tax in the category of service operator and the appellant after paying service tax has thereafter sought to avail Cenvat credit in that regard. The Adjudicating Authority issued eleven show cause notices to the appellant for the period from July, 2009 to December, 2015. These show cause notices were replied by the appellant after which the Adjudicating Authority permitted the appellant to avail Cenvat credit for the period from July, 2009 to March, 2011. From 1-42011 definition of the term “input service” in Rule 2(1) of the Cenvat Credit Rules, 2004 (for short, ‘the said Rules’) was amended. On that premise the Adjudicating Authority disallowed Cenvat credit on the ground that after the amendment, services used primarily for personal use or consumption of any employee stands excluded from the scope of “input service” and the same was thus ineligible for Cenvat credit. The Adjudicating Authority therefore by the order dated 28-12-2016 disallowed Cenvat credit for the period from 1-4-2011 to 31-12-2015 and ordered recovery of the same with interest under Rule 14 of the said Rules. Penalty was also imposed on the amount of said disallowed Cenvat credit under Rule 15 of the said Rules. This order was challenged before the Commissioner (Appeals) who by the order dated 2811-2017 partly allowed that appeal and maintained disallowance of Cenvat credit but reduced the amount of penalty. Further appeal before the Customs, Excise and Service Tax Appellate Tribunal – the Tribunal was decided on 23-5-2018 by maintaining the order passed by the Commissioner (Appeals) as regards disallowance by setting aside the order imposing penalty. Being aggrieved, the present appeal has been filed.
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5. We have heard the Learned Counsel for the parties at length and we have perused the order passed by the Tribunal disallowing the claim for Cenvat credit. It was found by the Tribunal that by virtue of the amendment dated 1-4-2011 rent-a-cab service had been excluded from the definition of the term “input service”. The same was in three limbs and the material basis for denying such Cenvat credit was in view of Clause (B) to Rule 2(1) of the said Rules. We find that the Tribunal was justified in disallowing Cenvat credit for the reasons mentioned in the impugned order. This is also clear from a reading of Section 65(105) of the Finance Act which excludes rent-a-cab scheme. The transportation of employees from distance of about 40 kms. for reaching factory is not an activity which could be said to be a part of manufacturing activity. It is merely for personal convenience of the employees to enable them to reach the premises of the factory so as to thereafter participate in the manufacturing activity.
In this regard, the Learned Counsel for the respondent is justified in placing reliance on the judgment of the Karnataka High Court in Toyota Kirloskar Motor Private Limited (supra) wherein food and beverages were provided by the appellant therein to its employees by engaging the services of an outdoor caterer. This was sought to be treated as “input service” since there was a statutory duty on the appellant to establish a canteen for its employees. Considering the effect of definition of “input service” after 1-4-2011 it was found that establishment of such canteen was primarily for personal use or consumption of the employees and after such amendment no Cenvat credit could be availed. This view has been upheld by the Hon’ble Supreme Court while dismissing the Special Leave Petition on 18-11-2021 preferred by the said appellant. The facts of the present case also indicate that the facility of transportation provided by the appellant to its employees was merely in the nature of service for personal use or consumption of its employees.
6. The decisions relied upon by the Learned Counsel for the appellant are clearly distinguishable. In M/s. Essar Oil Limited (supra) there was no dispute by the Department in that case that the services consumed by an assessee were related to various stages of its manufacturing and business activities. The same is not the case herein. The other decision in Mangalore Refinery & Petrochemicals Ltd. (supra) pertains to availing of service tax credit prior to 1-42011.
7. Thus considering the material on record, we find that the Tribunal did not commit any error whatsoever in disallowing Cenvat credit to the appellant after 1-4-2011 in view of the amended provisions. The service provided was mere in the nature of personal service to its employees which is not permitted to be treated as “input service”.
8. Accordingly the substantial questions of law as framed are answered against the appellant. The order passed by the Tribunal is upheld. Central Excise Appeal No. 12/2019 stands dismissed with no order as to costs.”
7. A perusal of the aforesaid decision made it clear that the same is similar to the facts involved herein and while taking into consideration the amended definition of Rule 2(l) ibid and in particular Rule 2(l)(B) ibid it has been held by the Hon’ble High Court that the transportation of employees for reaching factory is not an activity which could be said to be part of manufacturing activity and it is merely for personal convenience of employees to enable them to reach the premises of the factory so as to participate in the manufacturing activity which is not permitted to be treated as ‘input service’ after 1.4.2011 in view of the amended provisions. In my view the decision of Hon’ble High Court is binding on the Tribunal particularly when it is on the same issue. Although it has been brought to my notice that for the earlier period i.e. 2012-13 the issue has been decided in favour of the appellant in an appeal filed by the appellant before some other Commissioner (Appeals), but it is not going to help the appellant in any manner in view of the aforesaid decision of the Hon’ble High Court.
8. Therefore following the aforesaid decision in the matter of Solar Industries (supra) I am of the view that the facility of transportation provided by the appellant to its employees for reaching factory cannot be treated as input service in view of amended definition of Rule 2(l) and in particular Rule 2(l)(B) ibid which specifically excludes services provided by way of renting of motor vehicle, insofar as they relate to a motor vehicle which is not a capital goods, from the definition of input service and its merely a personal service to its employees. Accordingly the impugned order is upheld and the appeal filed by the appellant is dismissed.
(Pronounced in open Court on 31.08.2023)
