Refund on export of service carried out from unregistered premises is admissible or not?

PJ/CASE LAW/2015-16/2794

Case:- EMBITEL TECHNOLOGIES (INDIA) PVT. LTD. VersusCOMMR. OF S.T., BANGALORE

Citation:-2015 (39) S.T.R. 612 (Tri. - Bang.)

Brief facts:-The appellant is engaged in providing business support services and information technology and software services. A refund claim was filed by them on 18-5-2009 for Rs. 42,090/- being the unutilised accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 5/2006, dated 14-3-2006. The appellants claimed that they had used input services for export of output services from 16-5-2008 to June, 2008.
The refund claim has been rejected on the ground that during the period when the credit of service tax paid on input services was taken, the appellant was not registered. The Commissioner (Appeals) in her order has also observed that export should have taken place from the registered premises of the appellant and in this case, the export of service had taken place when the assessee was not registered.

Appellant’s contention:- The learned CA on behalf of the appellant submits that the issue is no longer res integra and is covered by the decision of the Hon’ble High Court of Karnataka in the case of mPortal India Wireless Solutions Pvt. Ltd. v. CST, Bangalore [2012 (27)S.T.R.134 (Kar.)].

Respondent’s contention:-The learned AR submits that the decision in the case of mPortal India Wireless Solutions Pvt. Ltd. would not be applicable to the facts of this case. He refers to Paragraph 7 of the impugned order wherein the learned Commissioner has pointed out that the export of service took place from unregistered premises and the Notification under which the refund has been claimed specifically provided that the export should take place from the registered premises. He draws my attention to the relevant provision in Notification No. 5/2006-C.E. (N.T.) and submits that since the appellant has not fulfilled the conditions, they are not eligible. He relies upon the decision in the case of CCE, New Delhi v. Hari Chand Shri Gopal [2010 (260)E.L.T.3 (S.C.)]. He submits that the decision of the Hon’ble Supreme Court makes it clear that conditions of the Notification have to be strictly followed and there cannot be any differentiation between substantive conditions and procedural conditions. He also submits that the documents required by the Revenue as per the show cause notice and the details relating to the nexus have not been produced by the appellant and he relies on Para 3 of the show cause notice.

Reasoning of judgment:-The relevant portions of the Notification relied upon by the learned AR to submit that conditions have not been fulfilled are reproduced for better appreciation. These are available in Para 3 of the Notification.
“3. The manufacturer or provider of output service, as the case may be, submits an application in Form A annexed to this notification to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, in whose jurisdiction,-
• The factory from which the final products are exported is situated, along with the Shipping Bill or Bill of Export, duly certified by the officer of customs to the effect that goods have in fact been exported; or
• The registered premises of the service provider from which output services are exported are situated, along with a copy of the invoice and a certificate from the bank certifying realization of export proceeds.”
First of all they are not convinced that this particular clause 3(b) is a condition to be fulfilled. Paragraph 3 relates to submission of an application and it requires that the registered premises of the service provider from which output services are exported should be in the jurisdiction of the concerned Dy. Commissioner. Therefore it cannot be considered as a condition to be fulfilled as regards exports to submit that export should have taken place from the registered premises. This clause has been inserted only for the purpose of taking a decision as to whom the refund claim should be filed. Even if it is taken as a condition, it cannot be read to mean that services should be exported only from the registered premises, there is no bar or prohibition in the law for making exports from unregistered premises also. The manufacturers that are not registered and service providers who are not registered are free to export and there is no prohibition. Further, the Hon’ble High Court of Karnataka in the case of mPortal India Wireless Solutions Pvt. Ltd. (supra) had decided that Cenvat credit would be admissible even when a manufacturer or a service provider is not registered. This was on the basis that in the Cenvat Credit Rules nowhere there is any registration clause for availment of Cenvat credit by a manufacturer or an output service provider. If Cenvat credit can be taken even before registration, the question arises by inserting a condition in the Notification, the credit which was admissible and available to an assessee and if it could not be utilized he becomes entitled to refund, can the refund be rejected on the ground that he was not registered at the time of exporting the service. In such a situation, the Notification would be going beyond the provisions of the Rules. Notification No. 5/2006 has been issued in exercise of the powers conferred by Rule 5 of Cenvat Credit Rules, 2004. That being the situation Notification cannot introduce a condition which is beyond the provisions of the Rule also. At this juncture, learned AR submits that the Notification is not beyond the provisions of Rule 5. That is not the question. The question is whether there is a provision in Cenvat Credit Rules restricting a manufacturer or an output service provider to take the Cenvat credit. In fact it is a settled law that an assessee is entitled to Cenvat credit even when he has indulged in clandestine removal and he was not registered. In all cases where there has been evasion of service tax or central excise duty or there has been short-levy for whatever reason, the Tribunal and the Courts have taken consistent view that Cenvat credit would be admissible when the duty payment is made, provided assessee has all the documents and is able to show that input or input service has been received and utilized for the purpose specified in the Rules. That being the position, it cannot be said that just because the assessee was not registered, Cenvat credit could not have been taken. Once the credit was taken if it is admissible and when it accumulates and cannot be utilised, when the Rule provided for refund, such refund cannot be rejected. In any case, I have already taken a view that Paragraph 3(b) cannot be considered as a condition to avail Cenvat credit or to claim refund holding that the prerequisite would be export from the registered premises.
In fact another view is also possible. If the premises from which exports took place was not a registered premises at the time when the exports took place but it was a registered premises at the time of filing the claim, in their opinion, that would be enough. The premises continues to be same and therefore even if the premises is registered subsequently, that would be sufficient. This is another view that is possible.
From the discussion above, it is quite clear that the only conclusion that may be reached is that an assessee need not have been registered to claim refund if during the time when he took the credit or when he exported, he had not taken registration. As regards the decision of the Hon’ble Supreme Court, since they have taken a view that there is no such condition in the Notification requiring the assessee to compulsorily register before making a claim, the decision of the Hon’ble Supreme Court would not be applicable to the facts of this case.
At this juncture, learned AR submits that he relies upon Paragraphs 5 and 6 of the Notification. They do not find how these provisions are relevant. As regards Para 5, it is the submission of the learned AR that where there were domestic clearances, whether the refund has been calculated as per the ratio prescribed in this paragraph etc. When they see the order-in-original in Paragraph 3 of the order-in-original, the original authority has reproduced the deficiencies pointed out in the show cause notice. In Para 4 he has recorded submissions made by the appellant. In Para 5 he has rejected the refund claim. His observation is that the Cenvat procedure is being followed thereafter. Since there is no observation at all whatsoever and he has also not chosen to make an observation that he is not examining the submissions made by the appellant because the refund claim is being rejected only on the ground of non-registration, they consider that he has closed the door to take up this issue afresh. Further, they also find that even Commissioner (Appeals) has not recorded any finding on this issue. So both the lower authorities have chosen not to record any finding and not even to record that they have not considered the issue. Therefore, they do not think it would be appropriate for the Tribunal to take a view that these aspects have not been considered. As regards Para 6 also on going through the paragraph, they find that these are also procedural aspects relating to formats enclosures, etc., and the observations made about Para 5 would apply to this paragraph also.
The learned AR makes another submission and relies upon explanation to Rule 5 of Cenvat Credit Rules, 2004 to submit that on the basis of this explanation, the appellant would not be eligible for the refund. The explanation reads as under: “for the purpose of these rules “the words output service which is exported” means output service exported in accordance with the Export of Service Rules, 2005” and the observations made holding that the original authority and the appellate authority below have closed the door applies to this explanation. Now they are unable to open this door for the Revenue.
In the result they have to take a view that appellant is eligible for the refund. However, for the purpose of verification of correctness of the amount claimed and scrutiny which has not been done earlier or which has not been considered to have been done in their order can be considered and the admissibility of refund decided in accordance with law without ignoring the observation in this order.
In the result the impugned orders are set aside and matters are remanded to the original adjudicating authority.

Decision:-Appeal disposed of

Comment:-The analogy of the case is that there is no bar or prohibition in law for making exports from unregistered premises. Once admissible Cenvat credit accumulates and remains unutilized, such refund cannot be rejected. It cannot be considered a mandatory condition to avail Cenvat credit or to claim refund holding that prerequisite would be export from registered premises only. Therefore assessee is eligible for refund.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2794

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