Rejection of application for refund of Cenvat credit on export of services.

PJ/CASE LAW/2016-17/3220

Case- Ms. Sulekha Beevi C.S., Member (J) COMMR. OF C. EX., NOIDA Versus FREE SCALE SEMICONDUCTORS INDIA PVT. LTD.

Citation- 2016 (41) S.T.R. 840 (Tri. - Del.)

Brief Facts-The Revenue has filed this appeal challenging order of refund of Cenvat credit of Rs. 21,20,532/-. The respondent is a 100% EOU and engaged in the business of processing of chips, the activity which includes circuit designing, testing, validation of such chips, integration of software on chips and support services for its parent company viz., M/s. Free Scale Semiconductors Inc. USA. The respondent filed an application for refund of Cenvat credit as the services exported are covered under the definition of Business Auxiliary Service as defined in Section 65(19) of the Finance Act, 1994. It is not in dispute that the respondents have registered for providing the said services with the service tax authority.
Appelants Contention-According to the Revenue the activity of the respondent would fall under the definition of ‘manufacture’ as defined in Section 2(f) of Central Excise Act, 1944.

Respondents Contention-Learned Counsel appearing for the respondent submits that the said activity is not a manufacturing activity. He explained that the activity undertaken in processing of chips involved conceptualization of new product, designing chips, testing and validation of chips and customer support after sales. Conceptualization of semi-conductor chip takes place based on feedback and requirement of the customer which is designed according to the customer’s need. The respondent then conducts testing and validation of chips and also provide after sale support. According to him, this would come within the definition of Business Auxiliary Service. The definition of Business Auxiliary Service as defined in Section 65(19) of the Finance Act, 1994 is as under :-
Section 65(19). - “business auxiliary service” means any service in relation to -
(i)         Promotion or marketing or sale of goods produced or provided by or belonging to the client: or
(ii)        Promotion or marketing of service provided by the client; or
            Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;
(iii)       any customer care service provided on behalf of the client; or
(iv)       Procurement of goods or services, which are inputs for the client; or
            Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, ‘inputs” means all goods or services intended for use by the client;
(v)        Production or processing of goods for, or on behalf of, the client;
(vi)       provision of service on behalf of the client; or
(vii)      a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,
and includes services as a commission agent, but does not include any activity that amounts to ‘manufacture’ within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).

Reasoning Of Judgement-On analyzing the definition of Business Auxiliary Service, on the factual backdrop of the explanation of the activity undertaken by the respondent, it reveals that it would come within the definition of Business Auxiliary Service under Section 65(19) of the Finance Act, 1994. Learned counsel for the respondent also relied upon the decision of Tribunal in CC, Hyderabad v. Knoah Solutions Pvt. Ltd. - 2010 (20)S.T.R.691 (Tri.-Bang.). The contention of the Revenue that the activity of processing of chips is a manufacturing process and that it would fall within the definition of ‘manufacture’ as under Section 2(f) of Central Excise Act, 1944 does not find merit at all. The services provided by respondents for their parent company is designing the new semi-conductor chip which has been conceptualized, after conduct of testing and validation, it is exported for further processing to parent company and respondents provide after sales support. The authorities below have relied upon the report dated 17-11-2008 which was based on observation of the activity after visit to the premises of the respondent.

Decision-Appeal dismissed

Comment- The crux of the case is that the services provided by the respondent include designing of new semi-conductors which is conceptualized and after conducting test and validation, it is exported to parent company and thereafter sales and support services are offered by respondent. Such activity is covered by Section 65(19) of Finance Act, 1994.There is no ground to interfere with the concurrent findings arrived at by adjudicating authority as well as the appellate authority. Thus, the appeal filed by the Revenue is dismissed.

Prepared By-Ritika Mehta

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PJ/CASE LAW/2016-17/3220

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