Customs, Excise & Service Tax Appellate Tribunal rules on CENVAT Credit for Outdoor Catering Services

Case Name:

M/s Hawkins Cookers Limited v. Commissioner of CGST & Central Excise, Thane

Key Takeaways:

1.The Customs, Excise & Service Tax Appellate Tribunal upheld the denial of CENVAT Credit for outdoor catering services.

2.The Department was aware of the appellants’ practice of taking CENVAT Credit on outdoor catering services, which affected the imposition of interest and penalty.

3.The case highlighted the importance of clarity and awareness on the part of the Department regarding the issue of CENVAT Credit for outdoor catering services.

Case Synopsis:

Based on the provided parts of documents (PoD), the appeal filed by M/s Hawkins Cookers Limited against the Order-in-Appeal No. DL/10/APPEALS THANE/TH/2019-20 dated 17.01.2020 passed by the Commissioner of GST & Central Excise (Appeals), Thane was heard by the Customs, Excise & Service Tax Appellate Tribunal in Mumbai. The issue in dispute was the availment of CENVAT Credit in respect of service tax paid on outdoor catering services provided to the employees and staff of the appellants. The Department contended that outdoor catering services were excluded from the definition of input service for availing CENVAT Credit under the CENVAT Credit Rules, 2004.

The original authority confirmed the demand of inadmissible CENVAT Credit and ordered for the recovery of the amount along with interest and penalty. The Commissioner (Appeals) upheld the order. The appellants filed an appeal before the Tribunal, arguing that the demand for recovery of CENVAT Credit for the extended period, along with interest and penalty, was not sustainable.

The Tribunal acknowledged that the issue of availing CENVAT Credit on outdoor catering services had been settled in favor of the Revenue in a previous decision by the Larger Bench of the Tribunal. However, the Tribunal also noted that the Department was aware of the appellants’ practice of taking CENVAT Credit on outdoor catering services and had defended their case in the past. The Tribunal cited previous judgments that held that when the Revenue authorities were aware of the facts about the assessee’s activities, the issuance of a show cause notice should be confined to the normal period and that mere failure to declare does not amount to willful suppression. The Tribunal concluded that the demand for the extended period, if any, was not sustainable.

The Tribunal also considered various decisions given by the Tribunal that highlighted the lack of clarity on the issue of availing CENVAT Credit on outdoor catering services during the disputed period. The Tribunal held that penalty and interest for the extended period were not sustainable, as the issue had attained finality at the highest level with a decision by the Supreme Court. The Tribunal set aside the interest and penalty imposed/confirmed in the impugned order and remanded the case back to the original authority to re-quantify the demand for the normal period.

In conclusion, the appeal filed by M/s Hawkins Cookers Limited was partly allowed by the Tribunal, with the case being remanded back to the original authority for the redetermination of the CENVAT Credit for the normal period.

FAQ:

Q1: What was the issue in the case?

A1: The issue in the case was the eligibility of outdoor catering services as an input service for availing CENVAT Credit.

Q2: What was the decision of the Customs, Excise & Service Tax Appellate Tribunal?

A2: The Tribunal upheld the denial of CENVAT Credit for outdoor catering services but set aside the demand for interest and penalty for the extended period.

Q3: What was the basis for the Tribunal’s decision?

A3: The Tribunal considered the settled view that outdoor catering services were excluded from the definition of input service under the CENVAT Credit Rules. However, the Tribunal also noted that the Department was aware of the appellants’ practice of taking CENVAT Credit on outdoor catering services, which affected the imposition of interest and penalty.

This appeal has been filed by M/s Hawkins Cookers Limited, Thane (W), Mumbai (herein after, referred to as “the appellants”) assailing Order-in-Appeal No.DL/10/APPEALSTHANE/TH/2019-20[ dated 17.01.2020 passed by the Commissioner of GST & Central Excise (Appeals), Thane.

2. The appellants herein are manufacturer of pressure cooker and for payment of central excise duty they are holding Central Excise registration with the jurisdictional Commissionerate. The appellants are also holding Service Tax registration for payment of service tax under reverse charge mechanism in respect of various services such as Goods Transport Operator, Rent-a-Cab service and Security services. The issue in dispute is in respect of CENVAT Credit taken by the appellants in respect of canteen facilities provided to their employees and staff, during shifts and office timings, and availing of service tax paid thereon in respect of services provided by an ‘outdoor caterer’ as eligible ‘input service’. The Department has contended that in terms of Rule 2(l) of the CENVAT Credit Rules, 2004, ‘outdoor catering service’ has been excluded from the definition of input service for availing CENVAT Credit under the said Rules. Hence, show-cause proceedings were initiated for denying the inadmissible CENVAT Credit amounting to Rs.11,14,751/- for the period January, 2016 to June, 2017 under the provisions of Rule 14 ibid and for recovery of such tax along with interest under Section 73(1), 75 of the Finance Act, 1994 besides imposition of penalty under Section 78 ibid read with Rule 15(3) ibid. The issue was adjudicated on the basis of appellant’s reply letter dated 04.09.2018 to the show-cause notice and the submissions made during the personal hearing on 30.05.2019. Vide Order-in-Original dated 27.06.2019, the original authority confirmed the demand of inadmissible CENVAT Credit under Section 73(2) ibid, read with Section 174 of the CGST Act, 2017, besides ordering for recovery of interest and penalty equal to the amount of tax evaded under Section 78 ibid. The appellants had preferred to file an appeal before the Commissioner (Appeals), Thane, who had rejected the appeal filed by the appellants by upholding the Order-in-Original dated 27.06.2019. Feeling aggrieved with this impugned order, the appellants had filed this appeal before the Tribunal.

3. The learned Advocate appearing for the appellants fairly concedes that the issue of admissibility of CENVAT Credit in respect of ‘outdoor catering service’ has attained finality in favour of Revenue, in view of the order passed by the Larger Bench of the Tribunal in the case of Wipro Ltd. Vs. CCE, Bangalore-III – 2018-TIOL-3256-CESTAT-BANG-LB. However, the learned Advocate submitted that the demand of recovery of CENVAT Credit for extended period along with imposition of interest and penalty is not sustainable in view of the various decisions given by the Tribunal and the higher judicial forum. In support of the same, he submitted the following case laws: -

(a) CCE & ST, Rohtak Vs. Merino Panel Product Ltd. – 2023 (383) ELT 129 (SC)

(b) Hindustan Coca Cola Beverages Ltd. Vs. CCE & ST, Vadodara – (2023) 2 CENTAX 116 (Tri-Ahmd)

(c) Sasken Technologies Ltd. Vs. CCE, Bangalore – 2019 (12) TMI 181-CESTAT Bangalore

4. The learned Advocate further submitted that in similar issue on availment of CENVAT Credit in respect of input services for the earlier period in their own case, the Tribunal had allowed their appeal and remanded the case for verification and passing of fresh order vide Order No. A/90989/17 dated 29.11.2017. Thus, he claimed that the Department was well aware of the issue of taking CENVAT Credit on input service in respect of outdoor catering service by the appellants, and therefore, they cannot now invoke extended period for demand of service tax and for imposition of penalty.

5. Learned AR appearing for the Revenue reiterates the findings of the impugned order and stated that the issue has attained finality inasmuch as the Hon'ble Supreme Court has upheld the order of the Hon'ble High Court of Karnataka for denying the CENVAT Credit on input services in respect of outdoor catering services post 01.04.2011. He further submits that interest on irregular availment of CENVAT Credit/short payment of tax is provided under the statue as per Section 75 ibid read with Rule 14 ibid. Further, for the act of omission and commission on part of the appellants in irregular availment of input credit, demand of inadmissible CENVAT Credit and penalty imposed in the Order-in-Original are sustainable and thus, he requests that the appeal filed by the appellants be set aside.

6. Heard both sides and perused the records of the case. I have also considered the additional written submissions given in the form of paper book by learned Advocate for the appellants and the Authorised Representative for the Revenue.

7. The issue in dispute is availment of CENVAT Credit in respect of Service Tax paid on the input service namely, outdoor catering services during the period January, 2016 to June, 2017. In this regard, I find that the issue is no more res integra in view of the decision of the Larger Bench of the Tribunal in the case of Wipro Ltd. (supra), wherein it has been held that the definition of ‘input service’ has been amended w.e.f. 01.04.2011 providing the exclusion clause, wherein the definition of input service under Rule 2(l) ibid, specifically excludes ‘outdoor catering services’. It has been concluded in the said order that the outdoor catering service is not eligible for input service credit post amendment dated 01.04.2011 vide Notification No. 3/2011-CE (NT) dated 01.03.2011. I also find that the Advocate for the appellants fairly concedes that the issue is now settled and the appellants are not eligible for the input credit in respect of Service Tax paid on outdoor catering service. I find that the total demand of inadmissible CENVAT Credit has been arrived at Rs.11,14,751/- in respect of 40 voucher entries covering the period January, 2016 to June, 2017, at para 2 of the Order-in-Original dated 27.06.2019. The original authority has confirmed the demand raised in the SCN dated 03.08.2018 holding that the availment of CENVAT Credit having knowledge that the same is inadmissible, amounts to suppression of facts and thus, by invoking the extended period, confirmed the entire amount of irregular CENVAT Credit. The same has been upheld by the learned Commissioner (Appeals) observing that this issue was known to the department only during the course of audit of records of the appellants. However, I find that the issue of availing CENVAT Credit on input service on outdoor catering service in respect of the canteen facility in the case of appellants has already been settled by this Tribunal in the assessee-appellant’s own case vide Tribunal’s Order No.A/90989/17 dated 29.11.2017. The relevant portion of the order is extracted below: -

“10. The next issue relates to cenvat credit on input services on outdoor catering service availed in respect of canteen facility. The appellants have pointed out heat they have more than 250 employees and maintaining canteen is obligatory as per law. He pointed that they are claiming cenvat credit only on the portion of the service availed. The appellants are paying and not claiming credit for the part of the service for which any amount is recovered from employees. In this regard, relying on the decision of the Tribunal in case of Ultratech Cement Ltd. (supra) and Hindustan Coca Cola Beverages Pvt. Ltd. (supra) the appeal is allowed.”

The above factual matrix of the case, clearly brings out that the department is not only well aware of the fact that the appellants were taking CENVAT credit on outdoor catering service but were also defending their case. Thus, I am unable to accept that there exists any ground for suppression on this particular aspect.

8.1. In this context, the Hon’ble Supreme Court, in the case of Pushpam pharmaceuticals Company Vs. Collector of Central Excise, Bombay - 1995 (78) ELT 401 (SC) have ruled that when the Revenue authorities were aware of the facts about the assessee’s activities, then issuance of show cause notice should be confined to the normal period. The relevant paragraph in the said judgement is extracted herein below:

“4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default.

In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

8.2. Further, in the case of Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut 2005 (188) ELT 149 (SC), the Hon’ble Supreme Court have dealt with the identical situation of time limit of issuance of the show cause notice. The relevant paragraphs in the said judgement are quoted below:

“26. In Tata Iron & Steel Co. Ltd. v. Union of India & Ors. [1988 (35) E.L.T. 605 (S.C.)], this Court held that when the classification list continued to have been approved regularly by the department, it could not be said that the manufacturer was guilty of “suppression of facts”. As noted herein earlier, we have also concluded that the classification lists supplied by the appellant were duly approved from time to time regularly by the Excise authorities and only in the year 1995, the department found that there was “suppression of facts” in the matter of post-forming manufacturing process of the products in question. Furthermore, in view of our discussion made herein earlier, that the department has had the opportunities to inspect the products of the appellant from time to time and, in fact, had inspected the products of the appellant. Classification lists supplied by the appellant were duly approved and in view of the admitted fact that the flow-chart of manufacturing process submitted to the Superintendent of Central Excise on 17-5-1990 clearly mentioned the fact of post-forming process on the rubber, the finding on “suppression of facts’’ of the CEGAT cannot be approved by us. This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay [1995 Supp (3) SCC 462], while dealing with the meaning of the expression “suppression of facts” in proviso to Section 11A of the Act held that the term must be construed strictly, it does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held :-

“In taxation, it (“suppression of facts”) can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty, when facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was not open to the CEGAT to come to a conclusion that the appellant was guilty of “suppression of facts”. In Densons Pultretaknik v. Collector of Central Excise [2003 (11) SCC 390], this Court held that mere classification under a different sub-heading by the manufacturer cannot be said to be willful mis-statement or “suppression of facts”. This view was also reiterated by this Court in Collector of Central Excise, Baroda v. LMP Precision Engg. Co. Ltd.[2004 (9) SCC 703]”

8.3 The above referred judgements, though were delivered in context with Section 11A of the Central Excise Act, 1944, but the ratio is squarely applicable to the case in hand, inasmuch as Section 11A of the Central Excise Act, 1944, is pari materia with the provisions of Section 73 of the Finance Act, 1994.

8.4 In view of the foregoing discussions, I am of the considered view that the impugned order passed by the Commissioner (Appeals) upholding the demand of CENVAT credit in respect of the show cause proceedings initiated by the department for the extended period invoking suppression are not sustainable. Therefore, the demand in respect of extended period, if any, is set aside.

9. Further, I find that various decisions given by the Tribunal bring out the fact that there was lack of clarity during the disputed period on the issue of availment of CENVAT Credit of Service Tax on outdoor catering service, and it was treated as an interpretational issue and there were divergent views till the issue was finally settled by the Larger Bench in case of Wipro Ltd. (supra). Therefore, the Tribunal in various cases held that penalty under Rule 15(2) ibid and invoking suppression of fact for demanding inadmissible CENVAT Credit cannot sustain and the same were set aside. It is also on record in the paper book compilation submitted by the learned AR that the dispute was finally settled at the highest forum by the Hon'ble Supreme Court in its order dated 18.11.2021 in the case of Toyota Kirloskar Motor Pvt. Ltd. Vs. Commissioner of Central Tax – 2021 (55) GSTL 129 (SC) having held that definition of input service post 01.04.2011 is very clear and outdoor catering services are not eligible, when such services are used primarily for personal use or consumption of any employee and thus, get excluded from definition of input service. From the above factual matrix, it could be seen that the issue has attained finality at the highest level by the Hon'ble Supreme Court on 18.11.2021 and thus, it is appropriate that demand of interest and penalty is not sustainable. This is more so, when the Tribunal has given the favourbale decision in the order dated 29.11.2017 on the basis of the judgment of Hon'ble High Court of Bombay in the case of Ultratech Cement Ltd. – 2017 (49) Service Tax Rules 94 (Bom).

10. In view of the above, I find that the demand of CENVAT Credit of Service Tax paid on outdoor catering service for the normal period alone is sustainable. However, the demand of interest for extended period is not sustainable as Department was aware of the issue as evidenced by the order of the Tribunal dated 29.11.2017 and as the issue was agitated in the highest Court by various appellate authorities as discussed in detail in paragraphs 8.1 to 9 above. Therefore, I set aside the interest and penalty imposed/confirmed in the impugned order by upholding the Order-in- Original dated 27.06.2019 and the matter is remanded back to the original authority to re-quantify the demand for the normal period with regard to impugned outdoor catering service on which CENVAT Credit was taken by the appellants.

10. In the result, the appeal filed by the appellants is partly allowed by remanding the case back to the original authority for the limited purpose of redetermination of CENVAT Credit involved for the normal period.

(Order pronounced in open court on 06.11.2023)

(M.M. Parthiban)

Member (Technical)