The current scenario in the country seems that the government is sending clear signals that “You do not get anything until you fight for it”. Service tax scene is no different. Cenvat Credit Scheme was introduced to provide for credit of duties paid on inputs with an intention to avoid cascading effect of duties and double taxation. Initially the scheme was known as Modvat credit scheme. With a view to remove the drawbacks and redundant conditions, this scheme was replaced with Cenvat Credit Scheme which is more liberal in nature and is a vast improvement over the initial Modvat Credit Scheme. However, department has always followed the unwritten policy of not allowing the benefits of Cenvat Credit Scheme unless the assessee does not fight for his rights. Presently the scheme provides for availing of credit in respect of taxes/duties paid on inputs, input services and capital goods and utilisation of the same for payment of duty/taxes on final products, output Services etc as the case may be.

In general terms, Cenvat Credit in relation to service tax paid on input services is allowed if they are in relation to the manufacturing activity and necessary for conduct of business of the assessee. Any layman would know and agree that the facilities provided to employees like, mobile phone, transportation facilities, canteen service, garden facility, recreation facilities etc in factory/office are modern-day business necessities required for the welfare of the employees to achieve better business results. The credit of Service Tax paid on such facilities provided to the employees are constantly denied by the department and are the subject matter of litigations before various judicial forums. Inspite of such of huge number of litigations pending on these issues, the Central Board of Excise and Customs have not come out with any clarification in the matter.

According to Cenvat Credit Rules, 2004; “input service” means any service, – (i)  used by a provider of taxable service for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, – and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; and excludes certain services.

Cenvat Credit of service tax paid on canteen services provided to employees have been a contentious issue and has faced many rounds of litigation. It was held in the case of GTC Industries STO 2008 CESTAT 320 that outdoor caterer providing catering services is input service relating to business and therefore the Cenvat credit is admissible. In the case of Ultratech Cement Ltd. CEO 2010 Bom 24 the Honorable Bombay High Court held that providing canteen facilities to workers is sometime mandatory to assessee as failure entails penal consequence. Outdoor caterer services are engaged to comply with Factories Act, 1948, Thus, providing canteen services have nexus or integral connection with manufacture. However, it was also distinguished that credit is not admissible to manufacturer if the Service tax is borne by the worker/employee. As per this ruling Cenvat Credit is admissible on Service Tax paid in respect of catering services provided in canteens provided the cost thereof is not recovered from the workers/employees. Further, Cenvat Credit Rules, 2004 as amended by Budget 2011, has specifically excluded credit of service tax paid on outdoor catering services, if they are for personal use of an employee.

As regards credit of Service tax paid on maintaining garden in the factory it was held in ISMT Ltd. STO 2009 CESTAT 1709 that a well maintained garden creates better environment which increases working efficiency and makes consumer feel good. It is a service in relation to business activity and used in or in relation to manufacture of final product and therefore credit is admissible. In respect of credit of Service Tax paid on mobile phones provided to employees the courts have held that mobile phones provided to employee for business purpose are eligible for credit. The department vide Board Circular no. 97/8/2007-S.T., dated 23-8-2007 has also confirmed that Credit of service tax paid in respect of mobile telephone service is admissible, provided the mobile phone is used for providing output service or used in or in relation to manufacture of finished goods.

Credit of Service Tax paid on rent-a-cab service, in respect of transport facility provided to employees is also held to be eligible by various decisions. In case of Bell Ceramics Ltd. STO 2010 CESTAT 798 it was held that the credit could be availed of the tax paid on the input service, as long as the assessee could demonstrate that services availed had an effect or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product.

Although the courts have ruled in favour of assessee on these issues and have agreed with view of the assessee as regards the interpretation of “input services” and have allowed credit of Service Tax paid on such input services, the department have not taken any efforts to reduce the number of litigations. By not issuing any clarifications on such contentious issues the department have not only allowed the cases of denial of credit in respect of such services to pile up, but also have add to the misery of the judicial forums strained by huge pendency of cases. It is about time that the department wakes up from its slumber and issue some clarification on such matters.