Rejection of refund claim for inability to ascertain exact classification.

Case:-CAPGEMINI INDIA PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI

Citation:-2015 (39) S.T.R. 641 (Tri. - Mumbai)

Brief facts:-Relevant facts that arise for considerations are appellant is registered with the authorities as provider of service under Service Tax category of “Business Auxiliary Services” (BAS in short) and “Information Technology Software Services” (ITSS in short). The appellant is also registered as software export firm and they export their services mostly parent or to their sister units situated abroad. For the month of July, 2008, appellant filed a refund claim of an amount which was lying unutilized in their Cenvat credit account, claiming it to be the services which were received by them for rendering output services viz. BAS and ITSS. Adjudicating authority after granting an opportunity of personal hearing to the appellant and considering their reply to the show cause notice, came to a conclusion that the export invoice under which the services are claimed to be exported is not in conformity with the provisions of Rule 4A of Cenvat Credit Rules, 2004 and hence it is not possible to ascertain the exact classification of the services which is said to be exported by them during the period under consideration and rejected the refund claim. Aggrieved by such order, an appeal was preferred before the first appellate authority. The first appellate authority after following due process of law, after considering the provisions of Export of Services Rules, 2005, Cenvat Credit Rules, 2004 and the definition of BAS and ITSS, held that the appellant is not able to co-relate the services exported by them and hence the impugned order before him was held as correct.

Appellant’s contention:- Learned counsel would take them through the case records and submit that the invoices which are raised by the appellant are on their own parent or sister concern situated outside the country. He would further take them through one sample invoice which was issued during the relevant period. He would draw their attention to the invoice specifically to point out that the invoice is for the job that has been allotted to them by their sister concern was in respect of business entity called ALCATEL. He would submit that though the bill is raised as “professional fees for the month of June, 2008”, the said bill also indicates a project code and the said can be verified from various documents. He would also draw their attention to the annexure which are enclosed with the invoice and submit that all these employees had travelled abroad for completing the work which has been given to them by their parent/sister concern. It is his submission that Revenue authorities have not disputed that the appellant had exported services and there is no dispute as to the fact that foreign exchange remittances are received against the bills which are raised.
He would then draw their attention to the definition of BAS and ITSS as also the provisions of Rule 4A of the Service Tax Rules, 2004 and Rule 5 of Cenvat Credit Rules, 2004. He would submit that except for the findings that the invoices which are raised by the appellant for export of services do not match with the descriptions of the export services viz. BAS and ITSS, no other findings have been recorded by the lower authorities, which would indicate that all other submissions are accepted by the authorities.
It is also his submission that the appellant is registered with the Government authorities as the unit is falling under Hardware Technology Park and Software Technology Park which are predominantly created for export of the services.
He would also submit that it is bounden duty of the lower authorities to classify the product/services. If they have any doubt, they could have called for the documents and come to a conclusion. He would draw their attention to order-in-original No. AC/R-140/Div-V/DPS/09-10, dated 28-1-2010 which was in respect of the refund claim filed by them for the unutilized credit in the month of August, 2008. He would submit that the said claim has been allowed and they have received the refund cheque also. He would submit that the issue involved in the current case before the Tribunal, the same issue was before the adjudicating authority in order-in-original dated 28-1-2010. He would submit that the authorities had called for the records from the appellant and after considering the entire issue allowed the refund claim. He would submit that Revenue is not in appeal against such an order.

Respondent’s contention:- Departmental Representative on the other hand, would support the impugned order on the ground that the appellant has failed to demonstrate that they had exported BAS and ITSS services in order to claim the refund of the amount of Cenvat credit lying unutilized during the relevant period.

Reasoning of judgment:- On perusal of the records they find that the issue is regarding refund of an amount lying unutilized in balance during June/July, 2008. Undisputed facts are that the appellant herein is registered with Hardware Technology Park and Software Technology Park created by Govt. of India for encouraging export of software services. It is also undisputed that the appellant had sought the service tax registration under the category of BAS and ITSS; that the appellant had availed Cenvat credit on input services which were procured and utilized for providing output services under the category of BAS and ITSS; that all the services which are rendered by the appellant are either to their parent/sister concern from whom they receive the order for rendering the services and foreign exchange remittances towards the bills raised by the appellant are received. On such factual matrix, it needs to be addressed whether the appellant is eligible for refund claim as filed by them.
The first appellate authority while rejecting the appeal filed by the appellant has done so by recording as under :-
“The above description given in the ‘export invoices’ does not indicate export of any service, taxable or otherwise or ‘Business Auxiliary Service’ and or ‘Information Technology Software Services’ as defined in sub-clause (19) and sub-clause (zzzze) of clause (105) of Section 65 of Chapter V of Finance Act, 1994 the details of the ‘Services’ rendered as given on the ‘export invoices’ only show that reimbursement of various types of expenses were claimed from the parties to whom the export invoices were issued.
Since there was no exports of output services as such, within the meaning of Export of Services Rules, 2005; the refund of unutilized Cenvat credit was, therefore, not admissible under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 5/2006-C.E. (N.T.), dated 14-3-2006 and the same was correctly denied by the adjudicating authority.”
It can be seen from the above reproduced findings of the first appellate authority which are similar to the views expressed by the adjudicating authority, the only reason for rejecting the appeal of the appellant seems to be the export invoices raised by the appellant does not indicate export of any service either under BAS or ITSS and hence there was no export of output service within the meaning of Export of Services Rules, 2005 or Rule 5 of Cenvat Credit Rules, 2004. They do not agree with the findings recorded by the first appellate authority for more than one reason.
Firstly, they find that Rule 3 of Export of Services Rules, 2005 specifically indicates that the services in relation to taxable services should be specified in clause (105) of Section 65 of the Act and also provides for exclusion. The appellant herein had registered himself with the service tax authorities for provision of export of services under the category of BAS and ITSS. In their considered view, once an assessee has registered himself as provider of output services, it cannot be disputed by Revenue that the appellant had not exported any services which falls within the meaning of Export of Services Rules, 2005.
Secondly, they find it is undisputed that appellant had registered with Hardware Technology Park and Software Technology Park of the Central Government which is an indicator that they are providing some services which are exported and do not fall under the exclusion clause of Export of Service Rules.
Thirdly, they find that the appellant has classified their services under BAS and ITSS as per their knowledge of the subject and got registration from the department and rendered the said services and also received foreign exchange remittances in respect of the invoices raised by them. It was for the department to come to a correct classification of the services if they have had any doubt. In an extreme case, even if the services rendered by the appellant, assuming does not fall under the category of BAS and ITSS, Revenue has not classified the said services as to one of the services which are falling under the exclusion clause of Rule 3 of Export of Services Rules which itself, as an indicator that the appellant had exported the services. The entire scheme of granting refund of the amount of unutilized Cenvat credit of the service tax paid on the services received by the appellant for export of services, is to reduce the cascading effect of the tax on the services which is the stated position of the Government of India, hence rejecting a refund claim on flimsy ground runs contrary to the Government policy is an unacceptable position.
Fourthly, they called for invoices raised by the appellant and perused the disputed invoices. They find that the said invoices indicate number, date, project for which it has been issued, invoice addressed to the recipient of service, either parent/sister concern and indicates project code. The said invoice as has been issued and the annexures to the invoice indicate the project is in respect of a software developed and the purchase order number of the client who has placed the order. In their view the information which has been indicated on the invoice is sufficient to come to a conclusion that the invoice was in respect of the export of software by the appellant to their sister/parent concern, who had given them the order.
As they have already recorded that there is no dispute that the appellant has received the payment in foreign exchange on the invoices raised. They find that the lower authorities have incorrectly appreciated the facts and held that the appellant is not eligible for the refund of the amount of unutilized credit.
Yet another issue which comes to their mind that adjudicating authority in his order No. AC/R-140/Div-V/DPS/09-10, dated 28-1-2010, on identical set of facts and on the same issue for the month of August, 2008, after verifying the records of the appellant, has clearly held that the services rendered by the appellant would fall under Export of Services Rules and sanctioned the refund claim for the month of August, 2008. They were informed that Revenue is not in appeal against such order. If that be so, for the earlier period, there can be no impediment to hold against the appellant and reject the refund claim of unutilized credit lying in balance during the period. At the same time they do find that the lower authority needs to arrive at a correct figure for refunding the same and needs to re-quantify the exact amount of refund which can be done so by them after going through the records.
By setting aside the impugned order as incorrect and holding that the appellant is eligible for refund of an amount of unutilized credit lying balance in their Cenvat account during the material period; they direct the lower authorities to sanction the refund after re-quantifying the amount.
Impugned order is set aside and the appeal is allowed as indicated herein above.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that dispute in classification of service cannot lead to denial of refund claim for accumulated cenvat credit. As far as it is not doubted that there was export of service and payment was received in foreign exchange, the assessee is eligible to claim refund of accumulated cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004.

Prepared by:- Monika Tak

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