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PJ/Case law/2014-15/2248

Whether refund of Cenvat credit be claimed under Rule 5 of CCR, 2004 even if assessee is not registered?

Case:- COMMISSIONER OF SERVICE TAX, CHENNAI Vs CLIENT NETWORK SERVICES INDIA (PVT) LTD
 
Citation:- 2014-TIOL-673-CESTAT-MAD

Brief facts:- The respondent were providing information technology service. During the period April 09 to March 10 they took Cenvat credit of service tax paid on input services used for providing such services. They claimed refund of credit taken by them during the period April 09 to March 10 as per provisions of Rule 5 of Cenvat Credit Rules, 2004. The adjudicating authority rejected the claim for the reason that the respondent had taken registration only in April 10 and therefore they could not have claimed refund for the period April 09 and March 10 and rejected the refund claim. Aggrieved by the order, the respondent filed appeal with the Commissioner (Appeals). Commissioner (Appeals) allowed the appeal relying on decision of the Hon'ble Karnataka High Court in the case of mPortal India Wireless Solutions (P) Ltd. Vs CST = 2011- TIOL-928-HC-KAR-ST wherein it was held that there was no ban on taking of credit on services received prior to the date of registration and consequently allowed the refund claim. Aggrieved by the order of Commissioner (Appeals), Revenue had filed this appeal.
 
Appellant’s contentions:- Ld. AR for Revenue submitted that the before Hon. Karnataka High Court, the appropriate rule under which registration was required was not pointed out and both sides were searching for appropriate provisions in Cenvat Credit Rules, 2004. The appropriate provision prescribing registration was under Rule 4 of Service Tax Rules, 1994 and as per this rule any person liable to pay service tax had to take registration. Just because an exporter was not required to pay service tax, assesses exporting service does not become exempt from the provisions for Rule 4 of Service Tax Rules 1994. This aspect had not been pointed out before the Hon. Karnataka High Court and this had resulted in the order which could not be relied upon. He relies on the provisions under Rule 4(7) of Service Tax Rules, 1994 and Rule 9(5) of Cenvat Credit Rules, 2004 and argues that combined reading of these provisions would imply that credit could be only taken after registration was obtained and he prays that the order of Commissioner (Appeals) may be stayed.
 
Respondent’s contentions:- Opposing the prayer, Ld. Consultant submitted that the respondent had initially applied for registration as per clause (c) of Notification No.41/07 as an assessee not paying service tax but they were advised by Department to take registration under Rule 4 of Service Tax Rules, 1994 and this had resulted in delay in obtaining the actual registration. There was no conscious delay on their part in following the procedure prescribed under the law.
 
Reasoning of judgment:- Considered the submission on both sides. Prima facie, this was a case where Revenue wanted to deny refund of input taxes for services exported relying for non compliance with procedural provisions, the requirement of which was doubtful for exporters. No case of substantial risk to Revenue was brought out. On this matter already there was a decision of the Karnataka High Court in favour of the respondent. In such situation, Hon’ble judge was of the view that prayer for staying the order could not be granted. Therefore, the stay petition filed by Revenue was rejected.
 
Decision:- Petition was rejected.
 
Comment:- The analogy drawn from the case is that if there is any unintentional delay in taking registration, then refund of cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 can be allowed based on the decision of  the Karnataka High Court in the case of mPortal India Wireless Solutions (P) Ltd. Vs CST = 2011- TIOL-928-HC-KAR-ST whereby it was concluded that procedural non-compliance should not deny the intended benefit to the exporters.

Prepared by: Ranu Dhoot

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