whether the appellant would be eligible for cenvat credit of the service tax paid on the input services used in export of services.

Case:- M/s IBM DAKSH BUSINESS PROCESS SERVICES PRIVATE LTD Vs COMMISSIONER OF CENTRAL EXCISE, DELHI-III

Citation:- 2014-TIOL-648-CESTAT-DEL

Brief facts:-The appellant provide the taxable services of Business Auxiliary Services (Call Central Service), Business Support Service, Intellectual Property Service, Manpower Recruitment or Supply Agency Services, Commercial Coaching Training Services, Information Technology Services and renting of Immovable Property Service, chargeable to service tax. The period of dispute in this case is from April, 2005 to March, 2006 and the dispute is in respect of Cenvat credit availability in respect of various input services used in providing the output services of call centre services (Business Auxiliary Services) and BPO services, both of which had been provided to their offshore clients i.e. were Export of Service under Export of Service Rules, 2005. These services, however, were also being provided to their domestic clients. During the period till 28.2.2006, the Call Centre Services (Business Auxiliary Service) were fully exempt from service tax under notification no.8/2003-CE dated 20.06.2003 and this exemption was withdrawn w.e.f. 1.3.2006 from which date this service became a taxable service. According to Department, the BPO service, which involved processing of mediclaims , etc. and transaction processing for their clients, became taxable under Section 65( zzzq ) read with Section 65(104) (c) of the Finance Act, 1994 w.e.f . 1.4.2006. The appellant during the period from 1.4.2005 to 28.02.2006 took cenvat credit of Rs. 4 ,95,56,617/- in respect of various input services, which were used in providing the Business Auxiliary Service of call centres and BPO services to their foreign clients. According to the appellant, during this period, they had not taken any cenvat credit of input services which were used in providing the output services of call centres (BAS) and BPO service to their domestic clients. Subsequently, the above mentioned credit was used for payment of service tax on the taxable services provided to their domestic clients during2006-07 and 2007-08. The department was of the view that since during the period from 1.4.2005 to 28.2.2006 the service of call centre (Business Auxiliary Service) was fully exempt from service tax under exemption notification no.8/2003-CE and since the BPO service, which is Business Support Service, was not taxable, as the same became taxable w.e.f . 1.5.2006, the appellant, notwithstanding their claim of having exported these services i.e. having provided the services to their foreign clients against payment in convertible foreign exchange, would not be eligible for cenvat credit. On this basis, a show cause notice dated 23.10.2009 was issued to the appellant for demand of cenvat credit amounting to Rs.4,95,56,617/- from the appellant, which had been taken by them during the period from 1.4.2005 to 28.02.2006, along with interest thereon under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994 and also for imposition of penalty on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 and also under Section 77 of the Finance Act, 1994. The above show cause notice was adjudicated by the Commissioner, Central Excise & Service Tax, Delhi-III vide order-in-original dated 27.09.2012 by which the above mentioned cenvat credit demand was confirmed along with interest and penalty of equal amount was imposed on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act and another penalty of Rs.5,000/- was imposed on them under Section 77 of the Finance Act, 1994 for non-filing of the ST-3 Returns during the period of dispute. Against this order of the Commissioner, this appeal has been filed along with stay application. Though today this matter was listed for hearing of the stay application only, after hearing this matter for sometime , the Bench was of the view that the same can be taken up for final disposal. Accordingly, with the consent of both the sides, the matter was heard for final disposal.

Appellant’s contentions:-Shri Sidhartha Tandon , Advocate and Shri Mahesh Jai Singh, Chartered Accountant, ld. Counsels for the appellants, pleaded that as mentioned in para 3.3 of the show cause notice itself, the cenvat credit, in question, in respect of various input services had been availed during the period from 1.4.2005 to 28.2.2006 and the input services in respect of which this cenvat credit had been taken, had been used for providing the services of call centre (Business Auxiliary Service) and BPO Service, which had been exported i.e. provided to the foreign clients, that though during the period of dispute, the call centre service (Business Auxiliary Service) was fully exempt from service tax under notification no.8/2003-CE and since this service has been exported, in terms of Export of Service Rules, 2005, the Cenvat Credit Rules2005, the appellant would not be required to reverse the cenvat credit and would be entitled to utilize that credit for payment of service tax on the taxable services provided to their domestic clients in view of the provisions of Rule 5 of the Cenvat Credit Rules, 2004, that as regards the BPO service provided to their foreign clients, this service pertained to processing of mediclaims and transaction processing, that the same was classifiable as Business Auxiliary Service and since the same had been exported, in terms of Rule 5 of the Cenvat Credit Rules, 2004, the appellant were eligible for cenvat credit of the service tax paid on the input services used in or in relation to providing the BPO service exported out of India, that even if, as per the departments allegations, the BPO service is treated as Business Support Service which was not taxable and which became taxable w.e.f . 1.5.2006, this service was covered by the definition of exempted service as given in Rule 2 (e) of the Cenvat Credit Rules, 2004 as per the definition of exempted service in Rule 2 (e) of the Cenvat Credit Rules, 2004, this term covered not only the taxable service fully exempt from service tax but also the services which are not taxable under Section 66, that once this service is treated as exempted service which had been exported out of India, in terms of Rule 5 of the Cenvat Credit Rules, 2004, the cenvat credit in respect of input services would be admissible, which could be used for payment of service tax on taxable service provided to domestic clients or if such utilization was not possible, the appellant could seek its cash refund, that the provisions of Rule 5 of the Cenvat Credit Rules are applicable even in respect of the services which were exempt from service tax or were not taxable, that in this regard he relies upon the judgement of the Tribunal in the case of M/s. mPortal (India) Wireless Solutions Pvt. Ltd. Vs. CST, Bangalore reported in - 2010-TIOL- 1486-CESTA T-BA NG, wherein it was held that Software Technology Park (STP) unit engaged in development of software would be entitled for cenvat credit of the services tax paid on inputs services used in development of software for export as this cenvat credit is admissible in terms of Exim Policy, that the Tribunal in the case of Zenata Private Limited Vs. CCE, Bombay-V with regard to provisions of Rule 5 of the Cenvat Credit Rules, 2004 has held that when an assessee is providing taxable service although exempted by the some notification, but the service had been exported, the assessee would be entitled to take cenvat credit, that the Tribunal in the case of M/s. Dell International Services India Pvt. Ltd. Vs. CCE, Bangalore reported in - 2009- TIOL-1957-CESTAT-BANG. held that once an activity like call centre services and IT Support and back office data processing are held as taxable service and accepted by the department and such service have been exported, the input services used for the export of the such taxable services would be entitled for rebate in terms of notification no.12/05-ST, that the ratio of the above judgements of the Tribunal is squarely applicable to the facts of this case, as the cenvat credit, in question, had been taken in respect of the input services which had been used in or in relation to providing BPO service and Call Centre Service (Business Auxiliary Service), which, in turn, had been exported and this cenvat credit can, under Rule 5 of the Cenvat Credit Rules, 2004, be utilized for payment of service tax on the taxable services provided to domestic clients of the appellant and if this is not possible, the assessee would be entitled for its cash refund, that in this case the cenvat credit, in question, has been utilized by the appellant for payment of service tax on the taxable services provided to their domestic clients during the period 2006-07 and 2007-08, that the impugned order denying the cenvat credit, in question, by invoking Rule 6(1) of the Cenvat Credit Rules, 2004 is not sustainable as Rule 6(1) is not applicable when the output service provided by utilizing the cenvated input services have been exported without payment of service tax.

Respondent’s contentions:- Shri Amresh Jain, the learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner in the impugned order and pleaded that in terms of Rule 6(1) of the Cenvat Credit Rules, 2004 no cenvat credit is admissible in respect of that quantity of the inputs or input services which had been used in or in relation to the manufacture of exempted goods or provision of exempted services, that in this case, while the Call Centre Service (Business Auxiliary Service) was fully exempt from service tax during the period of dispute under notification no.8/2003-CE, the BPO service, which involves processing of mediclaims and other transaction processing, is actually Business Support Service covered by Section 65(105)( zzzq ) read with Section 65(104)(c) of the Finance Act, 1994 which became taxable for the first time w.e.f . 1.5.2006 and as such, during the period of dispute, the same was not taxable, that the appellants claim that BPO service was taxable service as Business Auxiliary Service is not correct, that in view of this, no cenvat credit would be admissible in respect of input services used for providing the Call Centre Service and BPO Service even if these output services had been exported, that when the appellant were not eligible for cenvat credit in respect of the input services used in or in relation to the providing of Call Centre Service or BPO service, the same has been wrongly taken, even if the output services, in question, had been exported and hence, the same has been wrongly utilized during 2006-07 and 2007-08 for payment of service tax on the taxable services provided to Indian clients, that extended period has been correctly invoked, as the appellant had suppressed the relevant information from the department and that in view of this, there is no infirmity in the impugned order.

Reasoning of judgment:- We have considered the submissions from both the sides and perused the records. The period of dispute in this case is from 1.4.2005 to 28.02.2006. The point of dispute is as to whether the appellant would be eligible for cenvat credit of Rs.4,95,56,617/- availed by them in respect of various input service used in or in relation to the providing of Call Centre Service and BPO service which had been exported. The appellants claim is that during the period of dispute no cenvat credit had been taken in respect of input services used in or in relation to the providing of Call Centre Service or BPO Service provided to their Indian clients, in respect of which no service tax was payable and this claim of the appellant is not disputed by the department. The cenvat credit of Rs.4,95,56,617/- taken by the appellant in respect of input services used in or in relation to the providing of Call Centre Service or BPO service, which were exported out of India, has been utilized by them for payment of service tax on the taxable services provided to their Indian clients during 2006-07 and 2007-08. The appellants contention is that since the BPO service and Call Centre Service, both of which were taxable as Business Auxiliary Service had been exported out of India, the appellant, in terms of Rule 5 of the Cenvat Credit Rules, 2004 would be entitled for cenvat credit of the service tax paid on the input services used, irrespective of the fact that Call Centre Service during the period of dispute was unconditionally exempted from service tax under notification no.8/2003-ST and the BPO service was not a taxable service. The departments stand is that since during the period of dispute, while Call Centre Service was fully and unconditionally exempted under notification no.8/2003-ST and BPO service being Business Support Service and not Business Auxiliary Service, was not taxable at all and the same became taxable w.e.f . 1.5.2006 under Section 65(105) ( zzq ) read with Section 65 (104)(c ) of the Finance Act, 1994, in terms of the provisions of Rule 6 of the Cenvat Credit Rules, 2004, the appellant would not be eligible for cenvat credit of the service tax paid on the input services used in or in relation to providing these services and therefore, Rule 5of the Cenvat Credit Rules would not be applicable at all. So far as the Call Centre Service is concerned, there is no dispute that this being a service provided on behalf of the clients is covered by the definition of Business Auxiliary Service as given in Section 65 (105)( zzb ) read with Section 65(19) of the Finance Act, 1994. There is also no dispute that during the period of dispute, this service was fully and unconditionally exempt from service tax under Notification no.8/2003-ST. As regards the BPO service, the same involved processing of mediclaims and transaction processing for the appellants clients. Though the appellant plead that this service was also classifiable as Business Auxiliary Service during the period of dispute, we do not agree with this plea of the appellant, as these activities are specifically covered by the definition of Business Support Service as given in Section 65 (105 )( zzzq ) read with Section 65(104) (c ) of the Finance Act, 1994 which came into force w.e.f . 1.5.2006. It is well settled law that when a new service is brought within tax net by introducing a new clause in Section 65 (105) of the Finance Act, 1994, it has to be presumed that that service was not covered by any other clauses of Section 65(105). Therefore, we hold that BPO service involving transaction processing and processing of mediclaims etc. became taxable w.e.f . 1.5.2006 and as such, the same was not taxable during the period of dispute. The question now arises as to whether the appellant would be eligible for cenvat credit of the service tax paid on the input services used in or in relation to the providing of these services which had been provided to their overseas clients and, thus, had been exported in terms of the provisions of Export of Service Rules, 2005.
So far as the Call Centre Service (Business Auxiliary Service) provided to overseas clients is concerned, there is no dispute that this is taxable service under Section 65 (105 )( zzb ) read with Section 65(19) of the Finance Act, 1994 and the same was fully exempt from service tax during the period of dispute in terms of exemption notification no.8/2003-ST. The question as to whether the appellant would be eligible for cenvat credit in respect of the input services used in providing this service which had been exported without payment of service tax and whether this credit could be utilized by them in terms of Rule 5 of the Cenvat Credit Rules, 2004 for payment of service tax on taxable service provided to their domestic clients or their on inability to utilize this cenvat credit for payment of service tax on domestic service transactions, whether its cash refund would be available in terms of this rule, stands answered in favour of the appellant by the judgement of the Tribunal in the case of Zenta Pvt. Ltd. reported in - 2012-TIOL-624-CESTA T-MUM , wherein the Tribunal has held that if the assessee is providing a taxable service, although exempt by way of notification, but which had been exported, the assessee would be entitled to take cenvat input credit in terms of Rule 5 of the
Cenvat Credit Rules, 2004. We find that same view has been taken by the Tribunal in the case of M/ s.Dell International Services India Pvt. Ltd. reported in - 2009-TIO L-1957-CESTAT-BANG. , and also in the case of M/s. mPortal (India) Wireless Solutions Pvt. Ltd. reported in - 2010-TIOL-1486-CESTA T-BA NG . We also find that on the question of availability of input duty cenvat credit in respect of inputs used in or in relation to the manufacture of final products exported under bond/LUT, which though excisable, are fully exempt from duty by some exemption notification, has been considered by the Hon'ble Bombay High Court in case of Repro India Ltd. Vs. Union of India reported in 2009 (235) ELT 614 ( Bom .) = 2007-TIOL-795-HC-MUM-CX and also by the Hon'ble High Court of Himachal Pradesh in the case of CCE Vs. Drish Shoes Ltd. reported in 2010 (254) ELT 417 (HP) = 2010-TIOL-350-HC-HP-CX wherein the Hon'ble High Court has held that in such cases, input duty cenvat credit would be admissible to the manufacturer/exporter in terms of Rule 5 of the Cenvat Credit Rules, 2004 and this credit can either be utilized by him for payment of duty on the goods cleared for home consumption and on his inability to utilize the cenvat credit in this manner, the same would be refundable to him in cash in terms of this Rule, notwithstanding the fact that final products exported, in the manufacture of which the cenvated inputs had been used, were fully and unconditionally exempt from duty under some exemption notification. The ratio of these two judgements of Hon'ble High Courts is squarely applicable to the question of availability of cenvat credit in respect of input services used in or in relation to providing of Call Centre Service( Business Auxiliary Service) to offshore clients and which had been treated as export of service.
As regards the question of eligibility for cenvat credit in respect of input services used in or in relation to providing of BPO service, the position is different. This service, as held above, is covered by the definition of Business Support Service which became taxable w.e.f . 1.5.2006 and hence, during the period prior to 1.5.2006, the same cannot be treated as taxable under any other entry and as such, has to be treated as a non-taxable service. While there is no dispute that this service, though non-taxable, had been exported, the question arises as to whether the appellant would be eligible for cenvat credit in respect of input services used in or in relation to providing of this service in terms of Rule 5 of the Cenvat Credit Rules.
The relevant portion of Rule 5 of the Cenvat Credit Rules, as it existed during the period of dispute, is reproduced below:-
Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,
(i) Duty of excise on any final product cleared for home consumption or for export on payment of duty; or
(ii) Service tax on output service, And where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification: Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.
From a perusal of the above Rule, it will be seen that this rule is applicable when any input or input service has been used in providing output service which is exported. The term output service as defined in Rule 2(p) of the Cenvat Credit Rules, 2005 during the period of dispute, means any taxable service provided by the provider of taxable service to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expression provider and provided shall be construed accordingly. In terms of explanation to Rule 2 (p), if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service tax for which he is liable to pay service tax shall be deemed to be the output service. Thus, in terms of definition of output service in Rule 2 (p) of the Cenvat Credit Rules, 2004, the output service has to be a taxable service. A taxable service is the one in respect of which, in terms of the provisions of Section 66 of the Finance Act, 1994, the tax at the prescribed rate is required to be paid and these services are those services which are specified in various clauses of Section 65(105). A service which is not specified in any of the clauses of Section 65(105) of the Finance Act, 1994, could not be treated as a taxable service during the period of dispute. Since BPO service which was provided by the appellant to their offshore client and which involved transaction processing and the processing of mediclaims , etc. was not a taxable service during the period of dispute and it became taxable as Support Service for business of Commerce w.e.f . 1.5.2006 under Section 65(105)( zzzq ) read with Section 65(104) (c) ibid, during the period of dispute, this service would not be covered by the provisions of Rule 5 of the Cenvat Credit Rules, 2004 and accordingly, the cenvat credit would not be available in respect of inputs or input services used in or in relation to providing of this service, whether for offshore clients or for domestic clients. Therefore, the appellant were not entitled for cenvat credit of service tax paid on input services used in or in relation to providing of the BPO service during the period of dispute, even if the same had been exported.
In view of the above discussion, while the appellant have correctly taken cenvat credit in respect of input services used in or in relation to the providing of call centre service (Business Auxiliary Service) for export, they were not entitled for cenvat credit in respect of the BPO service provided to their offshore client and as such, the credit of input services in respect of BPO service has been wrongly taken by them and wrongly utilized for payment of service tax in respect of their domestic service transactions.
Next comes the question of limitation, as while the cenvat credit demand is for the period from 1.4.2005 to 28.02.2006, the show cause notice had been issued on 23.10.2009. In this case the show cause notice for demand of cenvat credit for the period from 1.4.2005 to 28.2.2006 has been issued on 23.10.2009 by invoking the extended period and the same would survive only if the departments allegation of the Appellants having suppressed the relevant information from the department and having contravened the provisions of Finance Act, 1994 and of the Cenvat Credit Rules, 2004 with intent to evade payment of service tax by wrongly availing cenvat credit stands proved. In this regard, the appellants submission is that while in the service tax return for the six monthly period ending September, 2006 submitted by them on 25.10.2006, they had not disclosed the information pertaining to export of services and availment of cenvat credit in respect of input services, but in a subsequent letter dated 9.3.2007 addressed to the concerned Superintendent, the information regarding export of service and cenvat credit in respect of the input services for the same had been furnished. We find that this fact stands accepted in para-3.4 of the show cause notice, but the departments contention is that this letter dated 9.3.2007 has been filed to cover up their earlier misuse and this letter is of no consequence, as filing of revised return was time barred. The fact of the assessee intimating the department in respect of their return for the six monthly period ending September, 2006 regarding export of services and availment of cenvat credit in respect of the same under their letter dated 9.3.2007 has been accepted by the Department but the Commissioner has observed that the same cannot be accepted as voluntary disclosure, as there is no provision for filing of revised return. We are of the view that when the department accepts that the appellant under their letter dated 9.3.2007 had submitted the required information about export of service and availment of cenvat credit in respect of the input service during the period of dispute, they cannot be accused of having suppressed this information from the department with intent to evade service tax by wrongly availing the cenvat credit. The ST-3 returns filed by an assessee are, after all, required to be scrutinized by the concerned range officers/ Asstt . Commissioner. In view of this, following the judgement of the Apex Court in the cases of Chemphur Drugs & Liniments reported in 1989 (40) ELT 276 (SC) = 2002-TIOL-266-SC-CX and Padmini Products reported in 1989 (43) ELT 195 (SC) = 2002-TIOL-289-SC-CX, and Pushpam Pharmaceuticals Company reported in 1995 (78) ELT 401 (SC) = 2002-TIOL-235-SC-CX , we hold that longer limitation period would not be applicable to the department and as such, the entire demand for wrongly availed cenvat credit would be time barred.

Decision:- The appeal is allowed.

Comment:- The analogy of the case is that when the department accepts that the appellant under their letter dated 9.3.2007 had submitted the required information about export of service and availment of CENVAT credit in respect of the input service during the period of dispute, they cannot be accused of having suppressed this information from the department with intent to evade service tax by wrongly availing the CENVAT credit - ST-3 returns filed by an assessee are, after all, required to be scrutinized by the concerned range officers/ Asstt .Commissioner. The assessee is providing a taxable service, although exempt by way of notification, but which had been exported, the assessee would be entitled to take CENVAT input credit in terms of Rule 5 of the CCR, 2004 - appellant have correctly taken CENVAT credit in respect of input services used in or in relation to the providing of call centre service (Business Auxiliary Service) for export.

Comments

PJ/CASE LAW/2014-15/2467

Post a Comment

Query