HIGH COURT OF KARNATAKA: TRANSPORT / RENT-A-CAB SERVICE OF EMPLOYEES TO AND FROM FACTORY IS INPUT SERVICE (In favour of assessee)

In its judgment dated 11^th April,2011 High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore-III vs. Tata Auto Comp Systems Ltd. upheld that transportation or rent-a-cab is an input service therefore credit of service tax paid on transportation or rent–a-cab facility can be availed by the assessee.

Issue for Consideration

The appeal was filed to consider the following issues:

• Whether the transportation service, provided in the factory of the M/s. Tata Auto Comp. Systems Ltd., to their staff for pick up and drop from their residence to the factory and vice versa, was an input service, in or in relation to manufacture, whether directly or indirectly of the final products within the meaning and comprehension of Rule 2(1) of the Cenvat Credit Rules, 2004.

• Whether the Cenvat credit of the Service tax, so paid for receiving the transportation services by them for pick up and drop from their residence to the factory and vice versa, was eligible for availment and utilization while paying service tax.

Facts of the case

• The assessee is holders of Central Excise Registration Certificate for manufacture of motor vehicle parts and accessories.

• Accordingly, the assessee is availing Cenvat credit of duty paid on inputs, capital goods and input services.

• The assessee was availing Cenvat and utilizing input tax credit relating to transportation services (Rent-a-Cab Service).

• Hence, the show cause notice was issued to them regarding availing Cenvat and utilizing input tax credit relating to transportation services.

• The assessee replied to the same.

• However, the assessing officer confirmed the demand.

• Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Appeals who rejected the same.

• Aggrieved by the same, the assessee preferred an appeal before the Tribunal. Tribunal held that assessee is entitled for availment of cenvat credit on the service tax paid on transportation services provided to their staff.  

Judgment

Aggrieved by the same, the department preferred an appeal before the Court.

The identical questions of law came up for consideration before this Court in the case of CCE vs. Stanzen Toyotetsu India (P.) Ltd.

• This Court held that the transportation/Rent-a-Cab service is provided by the assessee to their employees in order to reach their factory premises in time which has a direct bearing on manufacturing activity.

• In fact, the employee is also entitled to conveyance allowance which would form part of his condition service.

• While so holding the Court was of the view that if the credit is availed by manufacturer then the question is what are the ingredients that are to be satisfied for availing such a credit. That the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business.

 If any of the tests is satisfied then the service falls under input service and the manufacturer is eligible to avail Cenvat credit.

Regards

CA. Mona Singhal

Partner

Arpit Gupta & Associates

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