CENVAT Credit On Canteen Service Post 2011 – Yes, You May
Manas Joshi
As we all are aware that the definition of "input service" under Cenvat Credit Rules, 2004 has been amended drastically w.e.f. April 2011 and because of such drastic amendments, majority of interpretations and settled positions have taken U-turn. One of the settled position was CENVAT credit on canteen service was allowed prior to April 2011. However, w.e.f. April 2011, there is specific exclusion of canteen service from the definition of "input service" and accordingly, almost all the companies have stopped taking CENVAT credit on canteen service.In this connection, very recently, one interesting decision was published in the case of M/s Hindustan Coca Cola Beverages Pvt. Ltd. v/s CCE, Nashik reported in 2014-TIOL-2460-CESTAT-MUM wherein the Hon'ble CESTAT, Mumbai Bench held that post 2011, canteen service is excluded from input service definition only when such service is primarily for personal use or consumption of any employee. When the company has borne the cost of canteen and not recovered from the employees, then in that case, it cannot be treated as such canteen service is primarily for personal use or consumption of employee and accordingly, CENVAT credit is allowed. In other words, canteen service would be treated as primarily used for consumption of employee only when any cost of canteen is recovered from the employees of the company.
Now, before I discuss the grounds relied on by the Hon'ble CESTAT, I would like to give relevant text of the definition of the term "input service" for your ready reference:
"input service" means any service, -
(i) used by a provider of [output 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, …………………………………
——————————————————————————————————
but excludes, -
(A) ———-
(B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods;
(BA) ———
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;
CESTAT observations
While arriving at the above decision, the Hon'ble CESTAT relied on the following aspects:
- TRU circular D.O.F.No.334/3/2011-TRU dated 28 February 2011 issued at the time of introduction of the said amendment, wherein it is stated as under:
"9. On the same lines, a service meant primarily for the personal use or consumption of employees will not constitute an input service. A list of specific services has also been given by way of example in the definition. Most of these services constitute a part of the cost-to-company package of the employee and are provided either free of charge or on concessional basis to company employees."
2. Circular No. 943/4/2011-CX., dated 29 April 2011 which clarifies as under :
| Sr. No. | Issue | Clarification |
| 2. | Is the credit of only specified goods and services listed in the definition of inputs and input services not allowed such as goods used in a club, outdoor catering etc. or is the list only illustrative? | The list is only illustrative. The principle is that cenvat credit is not allowed when any goods and services are used primarily for personal use or consumption of employees. |
3. After referring to the exclusion part of the definition i.e. clause (C), the Hon'ble CESTAT observed that when the Government has specifically used the words such as "used primarily for personal use or consumption of any employee", the same has to be given due effect to. In the present case, the outdoor catering service is used in relation to business activities of the company and the service is used by all employees in general. Also, the Revenue has not rebutted the contention of the company, that the costs of these input services form part of the cost of final product. Further, the services covered in clause (B) of the definition are excluded from the ambit of CENVAT credit without any such qualification of use of service for personal or official purpose.
4. While concluding the decision, the Hon'ble CESTAT observed that the Government while issuing the budget clarification or subsequent circular has clarified that what is not eligible is that service which is meant for personal use or consumption by an employee or the cost of which is included as part of salary of the employee as a cost to company basis. In the present case, the cost of such services, are admittedly borne by the company and not by the employee and based on this aspect, CENVAT credit on outdoor catering service was allowed.
Now, the biggest question arises as to how to determine whether a particular service used for personal use / consumption of employee or for business use. This is because the neither the definition of "input service" nor this judgment of the Hon'ble CESTAT clarifies the principles for determining the same.
I personally feel that the following aspects / steps may be considered before arriving at the conclusion that a particular service is used not for personal use or consumption by an employee:
- Availment of a particular service is mandatory by some law (e.g. providing canteen facility is mandatory as per the Factories Act, 1948 subject to certain conditions etc.) in order to prove that service is related to business. Based on this decision, this aspect is important though the words "in relation to business such as" has been deleted from the definition;
- Cost of such input service forms part of cost of final products (cost of input service is considered in the cost sheet of the final product); and
- The company is not recovering anything from the salary of the employee on account of cost of canteen service facility. If the company is recovering anything from the salary of an employee, to that extent, credit will not be available.
It may be noted that the above steps are simply based on the grounds taken in the judgment and I am sure that there will addition to the above steps once time and litigation on this subject progress.
Credit to be taken within six months
As you all are aware that w.e.f. 1st September 2014, CENVAT credit on inputs and input services can be taken within six months from the date of invoice. Now, if any company wants to take CENVAT credit on canteen services based on the above decision, then this condition needs to be followed. In other words, if the company decides to take CENVAT credit on canteen service in the month of December 2014 then such company is required to consider only those invoices which are bearing date after June 2014.
However, if any company wants to play safely, then in that case, such company may have following two options:
- To take CENVAT credit on invoices issued after June 2014 and immediately reverse the same in the books of accounts. Subsequently, when the issue gets clarified in the positive manner, then take "re-credit" of the same. This is because, in terms of CBE&C Circular No. 990/14/2014-CX-8 dated 19th November 2014, there is no condition of six months for taking "re-credit"; or
- To take CENVAT credit on invoices issued after June 2014 and do not use the same for payment of output excise or service tax liability until the issue gets clarified in the positive manner.
No penalty for taking canteen service credit
It may be noted that even if eventually the Government declares canteen services as inadmissible input service and due to which any company requires to reverse CENVAT credit even in that case, 100% penalty (which is normally imposed by the department) can be waived or strongly argued based on the bona fide act of the company since credit was taken totally based on the present decision of the Hon'ble CESTAT.
Now, even after discussing positive grounds of the case, it may also be noted that the department will be definitely reacting aggressively against this decision of the Hon'ble CESTAT and therefore, in near future, it would be very interesting to see how the CBE&C and the Government reacts on the aggression of the department.
(Author Details -Mr. Manas Joshi, B.Com., DTL, LLB, CLM – Director at Proficient Partners Consultancy Pvt. Ltd.)
CA. M. Lakshmanan Whatever said and done everybody will agree that the higher the rate of tax the higher will be the generation of Black Money. We follow the progressive rate of taxation for Income Tax which is the main cause for creation of Black Money. Even in uniform rate of taxation higher the income, […]
To curb Black Money widen Tax Base
CA. M. Lakshmanan
Whatever said and done everybody will agree that the higher the rate of tax the higher will be the generation of Black Money. We follow the progressive rate of taxation for Income Tax which is the main cause for creation of Black Money. Even in uniform rate of taxation higher the income, higher will be the tax. But in progressive rate of tax higher the income the tax will be very higher. For example if uniform rate of tax @10% is imposed with a basic exemption of Rs. 2,50,000/- for an individual who is less than 60 years of age who earns an income of Rs. 15,00,000/- will have to pay Rs. 1,25,000/-. But in progressive system of tax which is in force now the tax payable will be Rs. 2,80,000/- which is @ 10 % for Income between Rs. 2,50,001 to Rs. 5,00,000, @ 15% for income between Rs. 5,00,001 to Rs. 10,00,000 and @ 30% for income above Rs. 10,00,000. Education Cess and Surcharges add further burden on the assessee. The Cess for education reminds us the good old barter system; you give paddy and I give vegetable. Who is going to prevent the government from setting apart a certain percentage of the tax collected for Education? Is it necessary to collect the same separately in order to spend the same separately for education? It is an open fact that in spite of collecting Cess for Education and Higher Education separately for so many years, there is mushrooming growth of Commercial Private Educational Institutions, which are stated to be run by Charitable Educational Trusts. At any point of time in a democratic country the intellectual who earns more money using his talent and knowledge should not be penalized in the form of higher tax than his counterpart. At one stage the higher rate of tax acts as a deterrent and the person who earns more will be compelled to hide his income or he will not be interested to earn more because chunk of his earning will be taken away by the exchequer as tax. In the long run they may not be interested in doing more business and earning more income since a sizable portion of their income has to be shelled out as tax and it will affect the economic growth of the nation in the long run. The new government at the centre has to take bold decisions such as uniform taxation and it should be seen that the gross revenue does not fall by roping in new assessees. In the past it is a proven fact that revenue had not fallen due to reduction in tax rates.
The government should work hard to increase the number of assessees by strengthening the survey team and plug in loop holes in the present system. There are lots of people who do not come into the system at all because the data collected by the department are not properly analysed and steps are not taken to follow up the evaders. The time spent on existing assessees should be reduced and it should be spent to rope in new assessees. More data should be collected from 'Sub Registrar's Office' for the property transactions and it should be followed up with at most care. Mostly the PAN is given by the seller and the purchaser and it is not known whether they file the return or not. TDS introduced for transactions above Rs. 50 Lakhs should be extended for all transactions above Rs. 1 Lakh. Non-Assessees give Form 60/61 and while these forms land in the I.T Department whether they are followed up by them or not is not known. Like-wise all banks collect either Form 60/61 or Form 15G/H and whether they file them with the Income tax Department is not known. Even if filed whether any action is taken by the department is not known. In these days of advanced computerization all the transactions coming under one PAN should be available by a click of the button. But since all the transactions under one PAN in different Bank Accounts are not integrated one can have deposits in different banks so that he earns less than Rs. 10,000/- as interest from a single bank and can easily evade tax. Again even if it exceeds Rs. 10,000 he simply gives Form 15 G/H to all banks very well knowing that he is giving a false declaration and never comes into the tax bracket. Now the Government is targeting deposits in foreign countries whereas there are lot unaccounted money in Indian Banks itself.
Though Bank Loan is required for many business people no loan should be granted unless he files Income Tax Return.
Declaration of all movable and immovable assets should be made compulsory for all assessees whether they are liable to pay wealth tax or not.
All anonymous donations received by Trusts and Political Parties should be subjected to flat 30% tax.
Like-wise second thought can be given on 'Dividend Distribution Tax' also because there is no equity in taxation. The companies pay 17% (Tax @15% + SC@ 10% EC @ 2% and SHEC @1%) on the income distributed and the same is exempted at the hands of the shareholder since the dividend has suffered tax already in the form of DDT ( Dividend Distribution Tax). But a shareholder who gets Rs. 1 Crore and a shareholder who gets Rs. 10,000 are taxed at the same rate of 17%. Instead the DDT can be treated as TDS and it should be allowed as deduction from the tax payable and further instead of exempting the dividend income totally exemption can be granted up to a limit say Rs.25,000/-.
High pitched assessments should be discouraged and in such cases if such high demands are reduced drastically the expenses incurred by the assessee in the form of appeal fees and legal expenses should be compensated from the first appeal itself. After the latest high pitched assessments by the Department, there is one school of thought among foreign investors that the Indian Income Tax system is too complicated and there are more than two interpretations for the same section/rule, which is deterrent for large scale FDI.
People at the helm of affairs should evolve a system, wherein compliance should be made easy; the system should be full proof so that creating of Black Money is stopped forever. To be more specific there should be no necessity to create Money, which breeds corruption, black marketing, drug trafficking etc.,
If the system become simple and full proof and creation of black money is not needed, millions of productive and intellectual man hours wasted in tax planning, appeals at various forums etc., can be saved and spent for productive purposes. Let us hope that India can reach such a position in the near future.
It has been decided to move amendments in the Companies Act, 2013 through an Amendment Bill. The Bill, namely, the Companies (Amendment) Bill 2014, inter alia, contains the amendments to the Companies Act, 2013 as under:— (i) to amend clauses (68), (71) of section 2 and section 11 of the said Act to omit the requirement for minimum paid-up share capital, and consequential changes;
Download Companies (Amendment) Bill, 2014 as passed in Lok Sabha
Companies Act, 2013 (Act) was notified on 29th August, 2013. Barring provisons relating to Chapters XV to XX and certain other provisions relating to setting up of/exercise of powers by National Company Law Tribunal (NCLT)/National Company Law Appellate Tribunal (NCLAT); Investor Education and Protection Fund (IEPF'); National Financial Reporting Authority (NFRA) and Special Court, all provisions of the Act have been brought into force with effect from 1 st April, 2014.
After the commencement of provisions of the Act, Government have received representations from various stakeholders (including Industry Chambers, Professional Institutes, Legal Experts and Ministries/Departments) expressing practical difficulties in complying with some of the requirements laid down in the commenced provisions. It was noted that some of the issues raised and suggestions made can be addressed only by way of amendent in the Act and their immediate resolution is also considered to be necessary. Some of the amendments are also required with a view to further facilitate 'ease of doing business' and deal with certain difficulties in this behalf brought out by Industry Chambers and other agencies.
The proposed amendments deal with related party transactions, fraud reporting by auditors, public inspection of Board resolutions, responsibilities of audit committee, restrictions on bail, making common seal optional, requirement for minimum paid-up share capital, strength of benches for hearing winding up cases, jurisdiction of special courts to try offences.
Amendments are also being proposed in the Act to incorporate some of the provisions earlier left out inadvertently, setting off of past losses/depreciation before declaring dividend and exemptions for giving of loans/guarantee/security by holding companies to its subsidiaries.
Accordingly, it has been decided to move amendments in the Act through an Amendment Bill. The Bill, namely, the Companies (Amendment) Bill 2014, inter alia, contains the amendments to the Companies Act, 2013 as under:—
(i) to amend clauses (68), (71) of section 2 and section 11 of the said Act to omit the requirement for minimum paid-up share capital, and consequential changes;
(ii) to amend sections 9, 12, 22, 46 and 223 of the said Act for making common seal optional, and consequential changes for authorisation for execution of documents;
(iii) to insert a new section 76A to provide for punishment for deposits accepted in violation of the provisions of the said Act;
(iv) to amend clause (g) of sub-section (3) of section 117 to prohibit public inspection of Board resolutions filed in the Registry;
(v) to amend sub-section (1) of section 123 of the said Act to include provisions for writing off past losses/depreciation before declaring dividend for the year;
(vi) to amend sub-section (6) of section 124 of the said Act for rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the Investors Education and Protection Fund even though subsequent dividend(s) has been claimed;
(vii) to amend sub-section (3) of section 134 and sub-section (12) of section 143 of the said Act to incorporate enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board's Report;
(viii) to amend clause (iv) of sub-section (4) of section 177 of the said Act to provide provision empowering Audit Committee to give omnibus approvals for related party transactions on annual basis;
(ix) to amend section 185 of the said Act to provide for exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries;
(x) to amend sub-section (1) of section 188 of the said Act for replacing 'special resolution' with 'resolution' for approval of related party transactions by non-related shareholders;
(xi) to amend sub-section (1) of section 188 of the said Act to exempt related party transactions between holding companies and wholly owned subsidiaries (WOS) from the requirement of approval of non-related shareholders';
(xii) to amend sub-section (6) of section 212 of the said Act to provide for bail restrictions to apply only for offence relating to fraud u/s 447;
(xiii) to amend sub-section (4) of section 419 of the said Act to provide for winding up cases to be heard by 2-member Bench instead of a 3-member Bench; and
(xiv) to amend sections 435 and 436 of the said Act to provide for that Special Courts to try only offences carrying imprisonment of two years or more.
The Bill seeks to achieve the above objectives.
NEW DELHI;
ARUN JAITLEY
The 8th December, 2014
The 8th December, 2014
Full text of the Companies (Amendment) Bill 2014 (Bill No. 185 of 2014), A Bill to amend the Companies Act, 2013 as placed in the Loksabha on 08.12.2014 can be downloaded from th
Invest Today and Relax Tomorrow!
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Author Bio: Anupama Sughosh is an independent finance blogger who loves writing about the rise and fall in the world of finance, banking, general industry trends and corporate sustainability. She holds a rich experience of working with corporates such as KPMG as well as institutions such as TISS, her articles share insights from the individual and the corporate perspective.
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Invest Today and Relax Tomorrow! All of us have enjoyed the benefits of proactive actions made in the past. Continuing this cycle, taking the right steps today can greatly benefit the unforese... | |||||||
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