CESTAT Allows CENVAT Credit on Canteen, Construction & Employee Accommodation Services

F M I Automotive Components Ltd. Vs Commissioner of Central Excise (CESTAT Chandigarh)

The appeal challenged the Order-in-Original dated 06.08.2014 by which the Commissioner of Central Excise denied CENVAT credit of ₹1,89,67,111, along with interest and an equal penalty under Rule 14 and Rule 15(2) of the CENVAT Credit Rules, 2004 read with Rule 25 of the Central Excise Rules, 2002, on canteen services, construction work services, hospitality charges and real estate agent services.

The appellant, engaged in the manufacture of automotive components, had availed CENVAT credit on various input services. Following an audit, the Department issued a show cause notice dated 08.08.2013 proposing recovery of ₹2,37,57,636. The Commissioner dropped a demand of ₹47,90,525 but confirmed the remaining demand of ₹1,89,67,111 relating to canteen expenses, hospitality charges for leased accommodation of expatriate/employees, commission paid to real estate agents for procuring such accommodation, construction services received for design and installation at the factory premises, and certain input services alleged not to have been used in the manufacturing premises or manufacturing process.

The appellant contended that the impugned services qualified as “input services” under Rule 2(l) of the CENVAT Credit Rules, 2004 as it stood prior to 01.04.2011, when the definition was inclusive and covered services used directly or indirectly in relation to manufacture. It was argued that canteen services were provided to employees working in shifts and were a statutory obligation under Section 46 of the Factories Act, 1948. The appellant also stated that it had voluntarily reversed the credit attributable to the amount recovered from employees and submitted that services received prior to 01.04.2011 could not be denied on the basis of Circular No. 943/04/2011-CX dated 29.04.2011.