Admissibility of refund claim under Rule 5 when the assessee gets late in taking registration.

Case:-J P MORGAN SERVICES INDIA PVT LTD Versus COMMISSIONER OF SERVICE TAX, MUMBAI

Citation:-2016 –TIOL-378-CESTAT-MUM

Brief Facts:-The material facts of the case were that this appeal lied against Order in Appeal No: SB (87) STC/2010 dated 29/07/2010 dated passed by the Commissioner of Central Excise (Appeals), Mumbai Zone I, concurring with the lower authority in rejecting their claims for refund of Rs.5,31,86,246/in all four claims pertaining to the periods October 2006 to December 2006, January 2007 to March 2007; April 2007 to June 2007 and July 2007 to September 2007 this had been filed on different dates between 26th December 2007 and 25th February 2008.

The appellant is a unit operating under software technology parks scheme in the foreign trade policy of the government of India and is, primarily, an exporter of information technology and information technology enabled services (IT/ITeS) from their registered unit. In addition to exports, a minor portion of their business relates to supply of services to their group entities within India. In the process of executing their contracts with clients in India and abroad, the appellant utilized input services on which CENVAT credit was availed by them. They utilized a portion of the available CENVAT credit for discharge of tax liability on services rendered domestically, a substantial amount remained unutilized; they sought refund of the balance credit as per entitlement under Rule 5 of the CENVAT Credit Rules, 2004. The appellant was registered as a supplier of 'banking and other financial services', 'business auxiliary services', 'business support services' and 'management, maintenance or repair services'. In addition, the appellant also undertakes software development which was not taxable.

The appellant were issued with a show cause notice for rejection of refund claims. The claims having been denied by the Assistant Commissioner of Service Tax, Division III, Mumbai, the appellant filed an appeal before the Commissioner of Central Excise (Appeals), Mumbai Zone I, who concurred with the decision of the lower authority in declaring the appellant ineligible for the refund claims. The impugned order was sought to distinguish the refund claims as those prior to registration and those post registration. It appeared that the appellant had taken registration as providers of 'banking and other financial services' on 5th October 2006 and it was only on the 7^th May 2007 that 'business auxiliary services and 'business support services' were incorporated in the service tax registration. Therefore, the impugned order found the appellant ineligible for refund for the period from 5th October 2006 to 7th May 2007 as availment of credit was contingent upon inclusion of output services in the registration. It also appeared from the impugned order that the first appellate authority had found that the appellant was undertaking activities from premises other than the one in the registration certificate. It was also found that such of the common input services were not segregated in relation to only services which were registered, namely, 'banking and other financial services'. It was also further pointed out that the services from the registered premises were also not segregated to enable grant of refund in relation to that premises alone. While acknowledging that the appellant is substantially an exporter of services covered under Rule 5 of the Cenvat Credit Rules, 2004 for accumulated input service credit that could not be utilized for domestic supply of services, the impugned order has held that the conditions of the Notification 5/2006CE (NT)dated 14/03/2006 had not been complied with, in terms of the notification eligibility for refund was restricted to that extent of the balance credit as existed in relation to the percentage of export turnover to the total turnover. The first appellate authority had held that none of the supporting documents were furnished in support of their claim indicated the extent of unutilized credit attributable to exports but had merely claimed the full extent of unutilized credit in relation to the export turnover. According to the impugned order, this limit was the ceiling and refund was liable to be sanctioned to the actual extent of unutilized credit in relation to the exports subject to the ceiling. In view of the inability of the appellant to produce details of unutilized cenvat credit in relation to export of services the refund claim was inadmissible.

Appellant Contention:-The learned counsel for the appellant had cited the decision of this Tribunal in their own case Commissioner of Service Tax, Mumbai II vs. J P Morgan Services India Pvt. Ltd. [2015 (38) STR 410 (Tri. Mumbai) = 2015-TIOL-226-CESTAT-MUMwherein almost identicalcircumstances, Commissioner (Appeals) had allowed two rejected refund claims

Reasoning of judgment:-following the decisions of tribunal where while dismissing the appeal, the Tribunal hadpointed out:
"6.1. The actual dispute centres around two issues. The first issue is whether the 21 input services is in respect of which refund of credit was claimed can be considered as input services used in providing output service which are exported without payment of service tax. For convenience we may refer to the definition of input service as below:
"'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 product up to the place of removal, and includes services used in relation to setting up, modernization, renovation, repair, 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 up to 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 up to the place of removal."
We may also refer to the amendment in notification No. 5/2006 by Section 74 of the Finance Act 2010. The amendment reads as:
"74. Amendment of notification issue under rule 5 of the CENVAT Credit Rules, 2004 In the notification of the Government of India in the Ministry of Finance (Department of Revenue) number of G.S.R. 156 (E), dated the 14th day of March, 2006, issued under Rule 5 of the CENVAT Credit Rules,2004, with effect from the 14th day of March, 2006
(A) in the opening portion,
(i) in clause (a), for the words, 'used in', the words "used in or in relation to' shall be substituted and shall be deemed to have been substituted;
(ii) in clause (b), for the words "used in", the words "used for" shall be substituted and shall be deemed to have been substituted;
From the amendment, is apparent that the scope of the admissibility of input services used in providing export services has been broadened to include of input services used for providing output services. On going through the list of 21 services, we find no reason to come to any sort of conclusion that these input services are not used in providing the services exported by the respondent. Further, on referring to the definition of input services we also find that input services used in relation to business are covered in the definition. Even, all input services used for modernization, renovation or repair to the office premises is also covered. We do not agree with the Ld. A.R. that advertising which is an input service for the Manpower Recruitment Service will not be eligible. We hold that, any service which is an input for another input service will get covered under the definition of input service on which credit is sought. However, we do not agree that part of the service tax credit, on the service of supply of food whose expenditure is gone by the employees, will not be an admissible input service for availment of credit. The permissibility of input service credit as discussed above has been upheld by a string of judgments of this Tribunal such as the case of Commissioner of C. Ex, Nagpur vs. Ultratech Cement Ltd. 2010 (260) ELT 369 (Bom) = 2010TIOL745HCMUMST, Commissioner of C. Ex, & Service Tax, LTU vs. Lupin Ltd. 2012 (28) STR 291 (Tri. Mumbai) and Commissioner of Service Tax vs. Convergys India Pvt. Ltd. 2009 (16) STR 198 (Tri.Del) = 2009-TIOL-888-CESTAT-DEL.
In the end we have no doubt that the services utilized are input services and refund of credit on these services is admissible under notification No. 5/2006. We note that Revenue's appeal raises a doubt whether the services have actually been used for providing taxable output services. We find no finding of this point in the adjudication order or in the appellate order. This is totally a new ground. There being no doubt expressed whatsoever either in the show cause notice or in the adjudication order, we do not find this point of appeal as relevant at this stage.
7. On the second issue of late registration, the respondents have rightly relied on Rule 4 of the Service Tax Rule under which registration is deemed to be granted within seven days of the application for registration. In the present case, the respondent had applied for centralized registration on 5.10.2006. Some communication took place thereafter between the respondent and the department which has been shown by the respondent and the registration was finally granted on 26.12.2008. We find nothing substantial in the series of communications to indicate that some important elements to be considered for registration are missing in the application, such as the premises which is sought to be registered. The judgments cited by Commissioner (Appeals) are relied upon. Further, judgment of the Karnataka High Court in the case of m-Portal India Wireless Solutions Pvt. Ltd. vs. C.S.T. Bangalore 2012 (27) STR 134 (Kar.) = 2012-TIOL-933-CESTAT-BANG which held that there is no restriction in availing cenvat credit before registration is granted. The Hon'ble High Court held that "insofar as requirement of registration with the department as a condition precedent for claiming Cenvat credit is concerned, learned counsel appearing for both parties were unable to point out any provisions in the Cenvat Credit Rules which impose such restriction. In the absence of a statutory provision which prescribes that registration is mandatory and that if such a registration is not made the assessee is not entitled to the benefit of refund, the three authorities committed a serious error in rejecting the claim for refund on the ground which is not existence in law. Therefore, said finding recorded by the Tribunal as well as by the lower authorities cannot be sustained. Accordingly, it is set aside."
8. This decision had been followed subsequently by the Tribunal in a number of cases, namely, BNY Mellon International Operations (I) Pvt. Ltd vs. Commissioner of Central Excise in appeal No. ST/707 & 708/2010 = 2015-TIOL-1491-CESTAT-MUM. learned counsel for the appellant also drew attention to the decision of this Tribunal in KPIT Cummins Infosystems Ltd. vs. Commissioner of Central Excise, Pune I [2013 (32) STR 356 (Tri. Mumbai) = 2013-TIOL-931-CESTAT-Mum which has held:
"5.4 Accordingly, Notification NO. 5/2006CE (N.T.) dated 14/03/2006 has been issued. Rule 6 of CENVAT Credit Rules, 2004 deals with obligation of the manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Under Rule 6(3)(c), the provider of output service shall utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. In the present case, the services provided by the appellant and exported is not a taxable output service inasmuch as software development software service and software consultancy service become taxable only in the Budget 2008. Therefore, the cap of 20% prescribed under Rule 6(3)(c) have no application whatsoever. Therefore, there was no bar on the appellant in availing full credit in respect of IT software services during the material period.
5.5 The appellant has received input/input services for rendering of taxable services during the material period, which has been exported. The hon'ble High Court of Karnataka in m-Portal India Wireless Solutions P. Ltd. (supra) case, in a similar situation, held as follows:
"6. The assessee is a 100% export oriented unit. The export of software at the relevant point of time was not a taxable service. However, the assessee had paid input tax on various services. According to the assessee a sum of Rs.4,36,985/is accumulated cenvat credit. The Tribunal has categorically held that even though the export of software is not a taxable service but still the assessee cannot be denied the Cenvat credit. The assessee is entitled to the refund of the cenvat credit. Similarly insofar as refund of cenvat credit is concerned, the limitation under Section 11B does not apply for refund of accumulated Cenvat credit. Therefore, bar of limitation cannot be a ground to refuse Cenvat credit to the assessee.7. Insofar as requirement of registration with the department as condition precedent for claiming cenvat credit is concerned, learned counsel appearing for both parties were unable to point out any provision in the cenvat credit rules which impose such restriction. In the absence of a statutory provision which prescribes that registration is mandatory and that if such a registration is not made the assessee is not entitled to the benefit of refund, the three authorities committed a serious error in rejecting the claim for refund on the ground which is not existence in law.
Therefore, said finding recorded by the Tribunal as well as by the lower authorities cannot be sustained. Accordingly, it is set aside.
5.6 The appellant mPortal India Wireless Solutions P. Ltd. was also a 100% EOU and the transaction undertaken are also identical in the sense that they relate to export of software. Therefore, the above decision is squarely applicable to the facts of the case before us. In any case, the object of EXIM Policy of the Government of India is to promote exports of goods and services and not export of taxes. Service tax being a destination based consumption tax, in the case of exports there should not be any tax burden and the tax burden, if any, is to be imposed by the Government of the country where the services are consumed. Otherwise, it would render the exports of software uncompetitive. Keeping in view of above policy objective of the government, it is appropriate to hold that the appellants are eligible for the refund of the amount claimed by them of Rs.2,14,45,060/ during the impugned period on account of export of exempted services subject to the satisfaction of other conditions prescribed in Notification No. 5/2006CE(NT) dated 14/03/2006 and the Revenue shall verify the same."
In view of the decisions of the Tribunal in the cited cases supra, they found no merit in theimpugned order. Accordingly the appeal was allowed with consequential relief.
Decision:- appeal allowed.

Comment:-the gist of the case is that the object of EXIM Policy of the GOI is to promote exports of goods and services and not export of taxes. Therefore Service tax being a destination based consumption tax, in the case of exports there should not be any tax burden and the tax burden, if any, is to be imposed by the Govt. of the country where the services are consumed, otherwise, it would render the exports of software uncompetitive Hence Refund admissible in terms of rule 5 of CCR, 2004.

Prepared by:- Bharat

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