T.K. Jayaraman, Member (T)

1. The issue relates to availament of input Service Tax credit on the following services.

(1) Medical and personal accident policy

(2) Group personal accident policy

(3) Insurance

(4) Personal accident policy

(5) Personal vehicle services

(6) Landscaping of factory garden

(7) Catering bills

2. I heard both sides.

3. The learned Chartered Accountant invited my attention to CAS-4 Standards reproduced in the decision of the Tribunal in the case of CCE, Mumbai v. CTC Industries Ltd. wherein all the elements of costs which are required to be included in the costing of final product have been enumerated. The relevant portions are reproduced herein below.

4.1 Cost of Production : Cost of production shall consist of material consumed, direct wages and salaries, direct expenses, works overheads, quality control cost, research and development cost, packing cost, administrative overheads relating to production. To arrive at cost of production of goods dispatched for captive consumption, adjustment for stock of work-in-process, finished goods, recoveries for sales of scrap, wastage, etc., shall be made.

5.2 Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities.

Contribution to provident fund and ESIC

Bonus/ex-gratia payment to employees

Provisions for retirement benefits such as gratuity and superannuation

Medical benefits

Subsidized food

Leave with pay and holiday payment

Leave encashment

Other allowances such as childrens education allowance, conveyance allowance which are payable to employees in the normal course of business etc.

With the help of the above standards, the Chartered Accountant argued that the contribution to provident fund and ESIC, medical benefits, subsidized food and also other allowances such as children education allowance, conveyance allowance which are payable to employees in the normal course of business, etc., are considered for costing a final product in terms of the CAS-4. When that be the case, it is evident that all these services have been rendered/received in relation to the manufacture of the final products by the appellants. Hence, the input credit is definitely allowable.

3.1 With regard to the credit on Service Tax paid on landscaping, the learned Chartered Accountant read out a definition of input service which reads as follows.

"Input Service" means any service,:

(i) used by a provider of taxable service for providing an output service, or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final productions from the place of removal, and includes services used in relation to setting up, 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, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

He argued that even for modernization, renovation, etc., the credit is allowable on the Service Tax paid. Therefore, it is not correct to deny the credit in respect of Service Tax paid for landscaping of the appellants premises.

4. The learned departmental representative stated that these services are remotely connected with the manufacture of the final products. He argued that the Commissioner (A) was right in disallowing credit on such services.

5. On a very careful consideration of the issue, I find that CAS-4 has considered all the services such as medical benefit, subsidized food, education allowance, canteen bill, etc., to form part of the cost of the final products. Therefore, I agree with the learned Chartered Accountant that these services which have been received have been rendered only in relation to the manufacture of the final products. The definition of input service is very broad and on a proper appreciation of the same, the argument that even landscaping is in relation to manufacture of final product, is acceptable. This is so because, by virtue of the definition of input service, even modernization, renovation, repair, etc., of the office premises are included. In that view of the matter, one can include even landscaping the surroundings of the factory as input service. In these days, much importance is given to keeping the environment of a factory in a proper manner. In view of the above observations, I hold that the appellants are rightly entitled to the credit on the services in the impugned order. Hence, I allow the appeal with consequential relief.

(Pronounced and dictated in open Court)