Export of Service - Rebate of Service tax paid

Case: CONVERGYS INDIA SERVICES P.LTD. V/s COMMR. OF SERVICE TAX, NEW DELHI

Citation: 2012 (25) S.T.R. 251 (Tri.-Del.)

Issue:- Export of Service – Rebate of Service tax – denial on ground of non-declaration held not sustainable as in Return “Other services” were mentioned.

Rebate of Tax paid on Advertisement Services, Chartered Accountant and Management Consultant – not deniable as the said services covered by definition of ‘input service’ under Rule 2(l) of Cenvat Credit Rules, 2004

Penalty under Section 78 – not sustainable when the rebate claim filed with all the supporting documents.

Brief Facts:- Appellant are engaged in the business of providing call center (customer care) services under taxable service category of 'business auxiliary services', as defined under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. They had entered into service agreement with Convergys Customer Management Group Inc. The appellant were, thus providing the taxable services of BAS to their client abroad. Since the output services were being treated as export under the Export of Services Rules, 2005, no service tax was being paid on the call service provided by them to their client abroad.

The appellant filed rebate claims under Rule 5 of the Export of Services Rules, 2005 for rebate of service tax paid on input services used in providing of their output service from July 2005 to March 2006.

The Assistant Commissioner sanctioned the rebate claims of total amount of Rs. 2,50,54,831/- and rejected the claim for Rs. 38,14,138/-. Out of Rs. 38,14,138/- which was rejected, an amount of Rs. 18,25,612/- had been rejected on the ground that same was in respect of outdoor caterers service, which was not eligible and in respect of mandap keeper real estate agents, erection, installation and commissioning services which have not been included in the declaration. The rebate claim for Rs. 19,88,526/- had been rejected for non submission of original invoices.

Appellant filed appeal against the Assistant Commissioner's order rejecting the claim of Rs. 38,14,138/-. The Commissioner (Appeals) set aside the order of the Assistant Commissioner and allowed rebate claim in respect of that amount.

As regard the rebate claim of Rs. 2,50,54,431/- which had been sanctioned by the Assistant Commissioner, this portion of the claim was examined by the Commissioner who was of the view that AC's order sanctioning the same was not correct and under the review powers vested under Section 84, show cause notice was issued for disallowing the rebate claim on the ground that –

(i) in respect of number of some services, required declaration is not filed as per Para 3.1 and the words "other Services" in the declaration filed under para 3.1 of the Notification No. 12/2005-ST (NT) would not cover the services used but not specifically mentioned in the declaration.

(ii) Proof of export submitted is not satisfactory and

(iii) services of Chartered Accountant Management Consultancy and advertisement are not the services which can be said to have been used for providing the output services which has been exported.

Subsequently, the Commissioner vide order-in-review dated 22-10-2009 passed under Section 84 of the Finance Act, 1994 disallowed the entire rebate claim of Rs. 2,50,54,831/-, ordered its recovery from the appellant under proviso to Section 73(1) of the Finance Act, 1994 along with interest on it. However, he at the same time, also ordered its credit to Consumer Welfare Fund on the ground that its sanction would amount to unjust enrichment, as the charges being received by the appellant from their client abroad are cost of operating call centre plus 10% of that cost, it indicates that they are recovering Service tax from their client. He also imposed penalty of Rs. 2,50,54,831/- on the appellant under Section 78 of the Finance Act, 1994, but did not impose any penalty under Section 77 of the Act.

Present appeal has been filed against order of the Commissioner disallowing rebate claim of Rs. 2,50,54,831/- with interest and its credit to the Consumer Welfare Fund and imposing penalty of equal amount on them under Section 78 of the Finance Act, 1994.

The Commissioner's order was examined by the Committee of Chief Commissioners, which dated 5-1-2010 observing that the Commissioner's order ordering credit of rebate claim to Consumer Welfare Fund is not correct, and that in view of the Apex Court's judgment in the case of C.C.E., Ahmedabad v. Cadila Laboratories (P) Ltd. reported in 2002 (142) E.L.T. 279 (S.C.) non-compliance of the procedure as laid down in the Notification issued under Rule 5 of Export of Services Rules, 2005 shall result in denial of rebate claim to the appellant, directed the Commissioner to file an appeal to the Tribunal for correct determination of these points. Revenue is in appeal to disallow rebate claim to be credited to the Government Account and also wants the penalty to be upheld.

Appellant’s Contention:- Appellant contended that Commissioner’s order directing credit of rebate claim to Consumer Welfare Fund is totally incorrect, and as per the provisions of Section 11B, the principles of unjust enrichment were not applicable in respect of export rebate. That the same view has been taken by the Tribunal in case of CST, Ahmedabad v. S. Mohanlal Services [2010 (18) S.T.R. 173 (Tri.- Ahmd.). That claiming the rebate, in question, the procedure as prescribed in the Notification No. 12/2005-ST, dated 19-4-2005 had been followed. That the jurisdictional Assistant Commissioner had sanctioned the rebate of Rs. 2,50,54,831/- after satisfying himself in this regard, that Commissioner's finding that the provisions of Para 3.1 of the Notification No. 12/2005-ST, dated 19-4-2005 have not been followed inasmuch as a number of services are not mentioned in the declarations filed, is not correct. That as regards the proof of export in form of details of the remittance received for export of services, the appellant had produced a detailed chart in this regard and the jurisdictional Assistant Commissioner had satisfied himself in this regard. That no condition prescribed for claiming rebate in Notification No. 12/2005-ST had been contravened. That in view of this, the Commissioner's order denying the rebate claim, and ordering its recovery is without any basis. That in their own case the Punjab & Haryana High Court reported in 2010 (20) S.T.R. 166 (P & H) has held that even though for the period 19-4-2005 to 31-5-2005, there was no declaration, the rebate claim for this period cannot be denied. That ratio of Punjab & Haryana High Court is squarely applicable to this case and even if the Tribunal holds certain service had not been specifically declared, the rebate cannot be denied and that there is absolutely no justification for penalty of Rs. 2,50,54,831/- imposed under Section 78 on the appellant as no fraud, willful misdeclaration, on suppression of facts etc. is involved. He, therefore, pleaded that the impugned order is not correct.

Further it was contented that all the import services had been declared in the monthly declarations that the services in question are covered by "other services" in the declarations, that in the declarations filed under Para 3.1 it is not possible to mention each and every input service expected to be availed during the month and that the Assistant Commissioner after checking had found only three services as not declared but the order of the Assistant Commissioner was set aside by the CCE (Appeals). As regards violation of condition of Para 3.4 (ii) (b) of the Notification, it has been pleaded by the appellant that co-relation statement had been submitted before the Assistant Commissioner and on that basis he was satisfied regarding the receipt of the payment from the overseas clients.

As regards denial of rebate in respect of Advertisement Services, Chartered Accountant and Management Consultancy Services, the appellant's plea is that these services are 'input' services within the meaning of this term, as defined in Rule 2(R) of Cenvat Credit Rules, 2006 and the question of rebate in respect of these services stands decided in the appellant's favour by Tribunal decision in the appellant's own case reported in 2009 (21) STT-67 = 2009 (16) S.T.R. 198 (Tribunal).

Respondent’s Contention:- Revenue argued that since the conditions as prescribed in the Notification No. 12/2005-ST for claiming rebate have not been fulfilled, the rebate claim has been correctly denied and its recovery from the appellant has been correctly ordered and penalty has been correctly imposed under Section 78 of the Finance Act, 1994.

Reasoning of Judgment:- The Tribunal noted the grounds on which the rebate has been denied by the Commissioner.

It was noted that it not the case of Revenue the disputed services which are alleged to be not specifically mentioned in the declarations filed under para 3.1 of the Notification, have not been received. There is also no allegation that as per the requirement of para 3.4(a)(ii) the invoices for all the input services had not been submitted. On the contrary, in the order-in-original passed by the Assistant Commissioner, he has given a clear finding that declarations filed were accepted by him on due verification of actual use of input services, except for one service viz. outdoor caterer services. The Commissioner while concluding that the condition of para 3.1 of the notification has not been fulfilled, has not stated as to how the above finding of the Assistant Commissioner is incorrect, when as per para 3.4(a)(ii) of the Notification No. 12/2005-S.T., the rebate application is accompanied by the invoices for inputs and input services as documentary evidence regarding the use of the input services, and there is no allegation of the department that rebate claims were not accompanied by such invoices. In view of this, even if the Commissioner's observation that certain services were not mentioned in the declaration is accepted, it would be only a technical lapse and it would not be correct to deny the rebate claim just for the reason that certain input services were not specifically mentioned in the declarations. As held by the Punjab and Haryana High Court in the appellant's own case reported in 2010 (20) S.T.R. 166 (P & H), the rebate under Rule 5 of the Export of Services Rules cannot be disallowed for delay in filing of declaration under para 3.1 of the Notification No. 12/2005-S.T. Moreover, when from the facts narrated in the show cause notice and the impugned order-in-original, it is clear the declarations, as required under para 3.1 of the notification, were being filed and in those declarations, only some inputs services as mentioned above were not specifically declared, it is highly irrational on the part of the Commissioner to deny the entire rebate claim.

Moreover, even in respect of services not specifically declared, there is substantial compliance as in every declaration the appellant by mentioning - 'Other Services', had clearly disclosed to the department that they intended to use some services other than those specifically mentioned in the declaration and subsequently while filing rebate claim had enclosed the invoices in respect of those services and, therefore, in respect of these services, the rebate cannot be denied. As mentioned in para 3.2 of the notification, the basic criteria for permitting the export rebate is the satisfaction of the sanctioning authority that there is no likelihood of evasion of excise duty and service tax i.e. claiming rebate for the inputs/input services not actually received. In this case, there is not even a whisper of such allegation. The failure to specifically mention certain input services in the declarations required to be filed as per para 3.1 of the notification is, therefore, a purely technical mistake for which the rebate claim cannot be denied.

It was held that the judgment of the Supreme Court in the case of Collector of Central Excise, Ahmedabad v. Cadila Laboratories (P) Ltd. 2002 (142) E.L.T. 279 (S.C.), relied upon by the department is not applicable to the facts of this case, when there is substantial compliance with the provisions of Notification No. 12/2005-S.T. regarding the procedure to be followed for claiming the rebate. Therefore, the Commissioner's order disallowing the rebate and ordering its recovery is not sustainable and the same is liable to be set aside.

As regards the second ground for denial of rebate claim, the Tribunal found that it is not disputed that the services, in question, have been exported, that is, the same have been provided to client outside India. The appellant have pleaded that they had produced a statement showing the co-relation between the export invoices and the FICRs, but there is no discussion regarding the same in the impugned order. On the contrary, the Assistant Commissioner in para 10 of the order-in-original sanctioning refund rebate claim has given a categorical finding that the appellant have filed the rebate claim along with requisite evidence as per para 3.4 of the notification and that they have fulfilled all the conditions of the Notification No. 12/2005-S.T. Just because FICRs do not bear the export invoice numbers, it cannot be concluded that the same do not pertain to the service provided by the appellant to their client abroad.

As regards the rebate claim in respect of advertisement service, Chartered Accountant Services of Management Consultant Services, it was noted that the Department does not dispute that the same are covered by the definition of 'input service' as given in Rule 2(1) of Cenvat Credit Rules, 2004. The department's objection is that these services are not used for providing the Customer Care Services which was exported. On this point the Tribunal in the appellant's own case [Commissioner of Service Tax v. Convergys India (P) Ltd. reported in 2009 (21) STT-67 = 2009 (16) S.T.R. 198 (Tribunal)] has held that there cannot be two different yardsticks, one for permitting credit and the other for eligibility for granting rebate and that whenever credit has been permitted to be taken, the same are permitted to be utilized and when the same is not possible, there is provision for grant of rebate and that without questioning the eligibility for credit, the eligibility to rebate cannot be questioned.

Following this judgment, the Tribunal held that Commissioner's order disallowing rebate in respect of advertisement service, Chartered Accountant Services and Management Consultant service is not sustainable and is liable to be set aside.

In view of the Tribunal the grounds on which rebate claim has been denied by the Commissioner are flimsy and as such the Commissioner's order is not sustainable. When the demand of service tax is not sustainable, there is no question of penalty under Section 78 of the Finance Act, 1994.

However, the Tribunal held that they cannot help expressing their anguish at the casualness with which the Commissioner by making the allegation of willful misstatement and suppression of facts against the appellant has invoked penal provisions of Section 78, totally ignoring the fact that the appellant had submitted the rebate claims with all the relevant documents to the jurisdictional Assistant Commissioner who after rejecting the claim for Rs. 38,14,138/- had sanctioned the remaining amount of Rs. 2,50,54,831/- after being satisfied about is correctness and the rebate sanctioned by the Assistant Commissioner's sought to be recovered by reviewing the AC's order without discovery of any new document indicating misstatement or suppression of some information by the appellant. In such a case, penal provision could be invoked only if there was evidence of collusion with the AC/DC sanctioning the rebate who in spite of the rebate not being admissible, sanctioned the same. But there is not a whisper of such allegation against the Assistant Commissioner. In case after care they find the provisions of extended period under proviso to Section 73(1) of the Finance Act, 1994 and provision to Section 11A(1) of Central Excise Act, 1944, together with penal provisions of Section 11AC of Central Excise Act, 1944/Section 78 of Finance Act, 1994 being invoked in a most casual manner by making the allegation of "suppression of fact", "willful misstatement" etc. without examining as to whether there is evidence on record to invoke these provisions and totally ignoring the law laid down in this regard by the Apex Court in a series of judgments - CCE v. Chemphar Drugs reported in 1989 (40) E.L.T. 276 (S.C.), Padmini Products v. Collector of Central Excise, reported in 1989 (43) E.L.T. 195 (S.C.); Pushpam Pharmaceuticals Company v. C.C.E., Bombay reported in 1995 (78) E.L.T. 401 (S.C.), Continental Foundation Jt. Venture v. C.C.E., Chandigarh reported in 2007 (216) E.L.T. 177 (S.C.), Anand Nishikawa Co. Ltd. v. C.C.E., Meerut reported in 2005 (188) E.L.T. 149 (S.C.) etc.

Decision:- Assessee’s appeal allowed. Department’s appeal dismissed.

Comment:- It is categorically held in this decision that the substantial benefit of refund claim cannot be denied on minor technical grounds. Secondly, there cannot be different criteria for allowing credit on “input services” and sanctioning of rebate claim. If the credit is allowed then the refund will be admissible. Hence, this is very far reaching verdict by the tribunal.

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PJ/Case Laws/2012-13/1083

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