CENVAT Credit Not Available On Canteen, Sodexo Services Provided To Employees Post 2011: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that companies cannot claim CENVAT credit on employee welfare services after April 1, 2011, following a statutory amendment that expressly excluded such benefits.

A coram of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao was deciding appeals filed by GE T&D India Ltd., a manufacturer of electrical and transmission equipment. The dispute covered April 2010 to March 2015.

The department had objected to credit taken on services such as medical facilities, canteen services, Sodexo meal passes, employee transportation, gardening, escort and security services for goods in transit, agencies engaged to collect C-Forms and payments, and certain civil and works contract services.

On employee welfare services, the tribunal drew a clear line at April 1, 2011. It noted that Rule 2(l) of the CENVAT Credit Rules was amended from that date to specifically exclude services used primarily for personal use or consumption of employees.

The coram observed that the statutory intent post-amendment was “explicit and left no scope for continued availment of credit on such excluded services.”

It found that the company continued to avail credit on Sodexo meal passes, medical services, canteen facilities and employee transport even after the amendment.

The tribunal held that “the continued availment of credit on such services, notwithstanding the clear statutory prohibition, cannot be treated as a mere interpretational dispute, but constitutes availment in contravention of the CCR provisions.”

Credit on these services was therefore rejected for the post-2011 period.

The tribunal also examined services relating to the collection of C-Forms and realisation of payments from customers. C-Forms were statutory declaration forms used under the pre-GST Central Sales Tax regime. Buyers issued them to sellers to avail a concessional rate of tax on interstate sales.

The tribunal held that services used to collect these forms and follow up for payments were “clearly post-sale and post-removal commercial activities” and had no nexus with manufacture or clearance of final products. Credit on these services was disallowed for the entire period.

A separate issue concerned escort and security personnel deputed along with high-value consignments during transit. The department had denied credit on the ground that such services were rendered beyond the “place of removal.”

The tribunal cautioned against assuming that the factory gate is always the place of removal. It held that “the 'place of removal' is not invariably the factory gate, but depends upon the terms of sale, transfer of property in goods, and allocation of risk between the parties.”

It further clarified that “outward services connected with delivery obligations cannot be excluded automatically without examining whether the clearance is completed at the factory gate or at the destination point under the contract.”

The bench added, “Escort/security services are directly linked with safeguarding consignments during outward movement and may qualify as input services if the place of removal extends beyond the factory gate. However, since the relevant purchase orders, delivery terms, insurance/risk clauses and contractual documents have not been placed before us in sufficient detail, we are unable to conclusively determine admissibility.”

This issue was remanded for limited verification.

The tribunal upheld invocation of the extended period of limitation. It partly allowed the appeal by remanding issues relating to escort services, gardening, and certain works contract services. Remaining disallowances were however, upheld.

For Appellant: Advocate Joseph Prabhakar

For Respondent: Authorised Representative M. Selvakumar