2017 (6) TMI 1109 - AT - Service Tax

100% EOU - refund of unutilised CENVAT credit - Rule 5 of CCR read with N/N. 5/2006-CE dated 14.3.2006 as amended - rejection on the ground that as per FIRCs the payment is received in Indian rupees and hence Rule 3(2)(b) of Export of Service Rules 2005 is not satisfied - case of appellant is that realisation is in foreign exchange so as to protect from the exchange rate fluctuations for which their bankers had been instructed by them to convert foreign exchange realisation into Indian rupee and credit to their account. Held that - this issue has been considered by various Benches of the Tribunal and it has been held consistently held that merely because payment is received in Indian rupee it cannot be said that payment against export has not been received in convertible foreign exchange as provided in Export of Service Rules 2005. Since the Indian rupee is received from the recipient of services through their foreign bank Silicon Valley Bank of USA the receipt of Indian rupee shall be treated as convertible foreign exchange. Further it is also clearly certified in the FIRC issued by the Standard Chartered Bank that remittances are in convertible foreign exchange. Reliance placed in the case of Commissioner of Service Tax Mumbai Versus M/s PMI Organization Centre Pvt. Ltd. 2015 (12) TMI 414 - CESTAT MUMBAI where it was held that It is clear that payment received in Indian Rupees for which FIRC issued by the bank and payment is routed through foreign bank qualifies the condition of payment convertible foreign exchange therefore on this ground refund cannot be rejected. Payment received in Indian rupee for which FIRC issued by the Standard Chartered Bank and the payment is routed through foreign bank shall fulfil the condition of payment (convertible foreign exchange) and therefore the denial of refund on this ground is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to refund of unutilised CENVAT credit.
2. Compliance with Rule 3(2)(b) of Export of Service Rules, 2005.
3. Treatment of payments received in Indian Rupees as convertible foreign exchange.
4. Admissibility of input service credit for security services and air travel services.

Issue-Wise Detailed Analysis:

1. Entitlement to Refund of Unutilised CENVAT Credit:
The appellants filed for a refund of Rs. 4,81,361/- for the period January 2013 to March 2013, representing unutilised CENVAT credit paid on input services used for providing output services exported under Rule 5 of CENVAT Credit Rules (CCR), read with Notification No.5/2006-CE dated 14.3.2006. The Assistant Commissioner rejected the refund claim on the basis that the payments were received in Indian rupees, which did not satisfy Rule 3(2)(b) of Export of Service Rules, 2005. This decision was upheld by the Commissioner (A), leading to the present appeals.

2. Compliance with Rule 3(2)(b) of Export of Service Rules, 2005:
The core issue was whether receiving payments in Indian rupees violated Rule 3(2)(b) of Export of Service Rules, 2005, which mandates that payment for export services should be received in convertible foreign exchange. The appellants argued that the payments were realised in foreign exchange but converted to Indian rupees by their bankers to mitigate exchange rate fluctuations, and they provided Certificates of Foreign Inward Remittances (FIRC) issued by their bank.

3. Treatment of Payments Received in Indian Rupees as Convertible Foreign Exchange:
The Tribunal considered several precedents and found that payments received in Indian rupees, when routed through a foreign bank and certified by FIRC, should be treated as convertible foreign exchange. The Tribunal referenced multiple cases, such as CST vs. PMI Organization Centre Pvt. Ltd. and Sun-Areas Real Estate Pvt. Ltd., which held that payments in Indian rupees through foreign banks satisfy the condition of payment in convertible foreign exchange. The Tribunal concluded that the payments received by the appellants in Indian rupees, routed through Silicon Valley Bank of USA and certified by Standard Chartered Bank, met the criteria of convertible foreign exchange.

4. Admissibility of Input Service Credit for Security Services and Air Travel Services:
The Tribunal also addressed the issue of whether input service credits for security services and air travel services were admissible. It noted that these issues were not raised in the show cause notice and that these services had a direct nexus with the export services provided by the appellants. Therefore, the denial of refund for these services was deemed incorrect. The Tribunal upheld the admissibility of these input services, stating that they were essential for providing export services.

Conclusion:
The Tribunal set aside the impugned orders rejecting the refund claims and allowed the appeals, providing consequential relief to the appellants. The Tribunal emphasized that payments received in Indian rupees, when routed through foreign banks and certified by FIRCs, should be treated as convertible foreign exchange, thereby fulfilling the conditions under Rule 3(2)(b) of Export of Service Rules, 2005. Additionally, the input service credits for security and air travel services were deemed admissible. The order was pronounced in open court on 27/06/2017.