The Supreme Court has recently decided on whether outsourced-catering services in an inhouse factory canteen eligible for 'input tax credit' under 'input services' vide CENVAT Credit Rules, 2004 post April 1, 2011.
In plea by Toyota Kirloskar Motor Pvt Ltd. wherein the Show-Cause Notice by Central Tax Department for availing Input Tax Credit on outdoor-catering for canteen within the factory premise has been challenged, the Top Court upheld the Karnataka High Court judgement denying the same.
Brief Facts of the Case
Toyota Kirloskar which is a manufacturer of dutiable excisable goods under the Central Excise Act, 1944 has established a canteen in the premises of its Factory as per the mandate of the Factories Act, 1948 and other Labour Laws.
To maintain and supply food stuffs in the canteen, the non-compliance of which attracts punishment and penalties under Factories Act, 1948, it was availing the outdoor catering services of one Sodexho Food Solutions Private Limited with due applicable rate of service tax.
The appellant company paid service tax of ₹37,53,952/- to Sodexho Food Solutions during the period of April 2011 to September 2011 and thereafter, took CENVET Credit of service tax of ₹37,53,952/- as a credit on 'Input Service' as defined under Rule 2(1) of the Cenvat Credit Rules.
To this, the Central Tax Department issued a show-cause notice dated 23rd April, 2012 to Toyota Kirloskar wherein it was alleged that 'outdoor catering services' weren't eligible for Input Services as being excluded vide Rule 2(I)(c) of the Cenvat Credit Rules.
Thereafter an order was passed by the CTD in April 2013, confirming the demand of ₹37,53,952/- with interest. It also imposed a penalty of ₹5 lakhs on the appellant company under Section 11AC r/w Rule 15(1) of the Cenvat Credit Rules, 2004.
Later on, the appellant company filed an appeal against the said notice before Commissioner (Appeals) which was rejected on 24.7.2013. The second appeal was filed before CESTAT/Tribunal which referred the matter as there were divergent decisions across India on the issue to a larger Bench and finally, ruled in favour of the CTD.
After Karnataka High Court too upheld the Tribunal's view, the appellant company moved Supreme Court
Arguements and Conclusion in Karnataka High Court
The Court held that the Tribunal ruled as per the amendment which came into force from 1.4.2011 and changed the meaning of 'Input Services' as it stand today. As per the 2011 amendment, 'outdoor catering services' is not at all covered under the 'Input Service' brought under Specific Exclusion Clause.
"The definition of ‘input service’ post amendment contains exclusion clause and exclusion clause was effected w.e.f., 1.4.2011. Clause (c) of the said exclusion clause specifically excludes the services provided in relation to ‘outdoor catering’ services. It is certainly not in dispute that said services prior to 1.4.2011 have been held to be covered by the definition of ‘input service’, however, after the amendment came into force in the light of specific exclusion clause, ‘outdoor catering’ service is not at all covered under the definition of ‘input service’."
A Taxing Statute has to be strictly construed and in Taxing Statue one has to look merely at what is clearly said, the Court mentioned Justice G.P.Singh's land mark work on 'Principles of Statutory Interpretation.'
"This Court has to look squarely at the words of the statute and interpret them. A Taxing Statute has to be interpreted in the light of what is clearly expressed, it cannot imply anything which is not expressed, it cannot merge provisions in the statute so as to supply any assumed deficiencies."
The Court also cited SC judgements in which similar view in respect of Taxing Statute has been taken. They namely being:
-A.V.Fernandez v. State of Kerala, 2017 Latest Caselaw 736 SC, CIT, Bombay v. Provident Investment Co., 1957 Latest Caselaw 47 SC, Gursahai v. CIT, 1962 Latest Caselaw 249 SC, Banarsi Debi v. ITO, 1967 Latest Caselaw 223 SC, Gujarat v. Vadilal Lallubhai, 1983 Latest Caselaw 158 SC, McDowell & Co.Ltd., v. Commercial Tax Officer, 2017 Latest Caselaw 223 SC, Mohammad Ali Khan v. Commissioner of Wealth Tax, 1997 Latest Caselaw 212 SC, Geo Miller & Co. (P) Ltd., v. State of M.P., 2004 Latest Caselaw 314 SC
Supreme Court View
The Top Court was of the view that the HC didn't err in denying the input tax credit and holding that such a service is excluded from input service and stood completely with the judgement.
It thus dismissed the plea and held:
"The statutory provision - Rule 2(1) defining “Input Service” post 01.04.2011 is very clear and 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”.
Read Karnataka HC Judgement Here:
Read Supreme Court Order Here:
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