2025 (6) TMI 1092 - AT - Service Tax

Refund of unutilized Cenvat Credit of Service Tax - Appellant did not submit all copies of BRC/FIRC in support of export turnover - relevant services were either used in un-registered premises or did not have any nexus with the output services or did not fall in the ambit of Rule 2(1) of CCR or on strength of invalid documents/missing invoices in contravention of Rule 9 ibid - HELD THAT - There are no merit in the ground stated at (i) for the reason that the if the credit claimed was inadmissible for any reason then proper proceedings for the denial of the CENVAT Credit should have been initiated under Rule 14 of the CENVAT Credit Rules 2004. When the Appellant has claimed refund of the unutilized credit in terms of Rule 5 of CENVAT Credit Rules 2004 read with Notification No 5/2006-CE the question of admissibility of the CENVAT Credit could not be questioned and refund claim denied for this reason. In case of Qualcomm India Pvt. Ltd. 2019 (8) TMI 1645 - CESTAT HYDERABAD Hyderabad Bench has held that in absence of specific provisions contained in the statute denial of the refund benefit provided under Rule 5 ibid in our considered opinion cannot stand for judicial scrutiny. Admittedly in the present case there is no position to ascertain whether any proceedings for denial of the CENVAT Credit were initiated in terms of the Rule 14 of the CENVAT Credit Rules 2004. Nothing to this effect has been stated either in the show cause notice order in original or the impugned order. Thus in absence of any assertion that proper proceedings have been initiated under Rule 14 in view of the above decision there are no merits in the impugned order denying the refund claim by holding certain credits as inadmissible. There are merits in the submissions of the Appellant that for determining the admissibility of the refund the authorities should have made the revised calculations by taking those FIRCS/BRCs which were produced by the Appellant. Undisputedly the entire amount claimed as refund by the Appellant as per the refund claim filed by them 28.12.2012 would be admissible even if the export turnover for the purpose of calculating the admissible refund as per notification No 5/2006-CE (NT). Thus there are no merits in the rejection of the refund claim on this account also. There are no merits in the submissions made by the Appellant claiming refund over and above the amount claimed by them in the claim filed by them on 28.12.2012. Impugned order correctly records that the Appellant could not have claimed any amount which was not the subject matter of proceedings before the lower authorities. Conclusion - There are no merit in the denial of refund on the grounds of lack of nexus or unregistered premises especially in absence of any Rule 14 proceedings. Appeal is thus allowed to the extent of the amount claimed as refund in the refund claim filed by the Appellant on 28.12.2012 and was subject matter of the show cause notice dated 07.04.2014.

Summary

The core legal questions considered in this appeal revolve around the admissibility of a refund claim under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 05/2006-CE (NT) dated 14.03.2006. Specifically, the issues include:

1. Whether the appellant is entitled to refund of unutilized CENVAT credit of service tax on input services used for providing output services, despite objections raised regarding the nexus between input services and output services, and the location of receipt of input services.

2. Whether the failure to produce complete Bank Realization Certificates (BRCs) or Foreign Inward Remittance Certificates (FIRCs) justifies rejection of the refund claim.

3. Whether the refund claim can be denied on the basis of alleged irregular availment of CENVAT credit without initiation of proceedings under Rule 14 of the CENVAT Credit Rules, 2004.

4. The applicability and interpretation of the nexus requirement between input services and output services for claiming refund under Rule 5, vis-`a-vis the broader definition of input services under Rule 2(l) of the CENVAT Credit Rules, 2004.

5. Whether the appellant could claim refund of additional amounts such as Education Cess (EC) and Secondary and Higher Education Cess (SHEC) along with the service tax refund.

Issue-wise Detailed Analysis

Issue 1: Admissibility of Refund Claim Despite Objections on Nexus and Premises

The legal framework primarily involves Rule 5 of the CENVAT Credit Rules, 2004, which permits refund of unutilized CENVAT credit on inputs and input services used in export of goods or services, read with Notification No. 05/2006-CE (NT). Rule 3(1) allows taking credit of service tax paid on input services used in providing output services. Rule 2(l) defines "input service" expansively to include services used directly or indirectly in relation to the manufacture of final products or provision of output services.

The adjudicating authority rejected the refund on grounds that the input services were received at unregistered premises, lacked nexus with output services, and credit was claimed on reverse charge basis without valid invoices. However, the Court noted that Rule 14 of the CENVAT Credit Rules, 2004, provides the mechanism for recovery of irregularly availed credit through proper proceedings, which were not initiated in this case. The Court relied on precedents including Qualcomm India Pvt. Ltd., BNP Paribas India Solutions Ltd., and Credit Suisse Business Analytics India Pvt. Ltd., which held that denial of refund under Rule 5 on grounds of inadmissibility of credit without invoking Rule 14 is impermissible.

The Court emphasized that the nexus requirement for refund under Rule 5 should be harmonized with the broader nexus test for credit under Rule 2(l). The Circular No. 120/1/2010-ST issued by CBIC was pivotal, clarifying that the nexus for refund should not be stricter than that for credit, and that input services used directly or indirectly in providing output services qualify for refund. The Circular further explained that services impacting the quality and efficiency of exported services, such as renting premises, software use, maintenance, telecommunication, and manpower recruitment, are eligible.

Applying this legal framework, the Court found no merit in the denial of refund on the grounds of lack of nexus or unregistered premises, especially in absence of any Rule 14 proceedings. The Court held that the refund claim could not be rejected on these grounds during refund processing.

Issue 2: Non-submission of Complete BRCs/FIRCs

The adjudicating authority rejected the refund claim partly because the appellant failed to produce all relevant BRCs/FIRCs corresponding to the export turnover claimed. The appellant produced 20 FIRCs totaling approximately Rs. 43.94 crores against an export turnover of Rs. 72.90 crores. The authority found this insufficient to satisfy the conditions of Notification No. 05/2006-CE (NT).

The appellant argued that even considering only the FIRCs produced, the refund claimed would remain admissible. The Court accepted this submission after recalculating the refund admissible based on the reduced export turnover. The recalculations showed that the refund amount claimed by the appellant was within the admissible limit considering the FIRCs produced.

The Court noted that the impugned order was silent on this recalculated basis and that the authorities should have considered the FIRCs submitted rather than outright rejecting the claim for non-production of all FIRCs. The Court thus found no merit in rejection of the refund claim on this ground.

Issue 3: Denial of Refund Without Initiation of Rule 14 Proceedings

Rule 14 of the CENVAT Credit Rules, 2004, provides the procedure for recovery of credit wrongly availed or utilized. The Court underscored that denial of refund on grounds that credit was inadmissible or irregular without following Rule 14 proceedings is not sustainable.

The Court relied on authoritative decisions which held that refund under Rule 5 cannot be denied on the ground of irregular credit without Rule 14 action. Since the Revenue had not initiated such proceedings, the denial of refund on this basis was held to be unjustified.

Issue 4: Interpretation of Nexus Requirement and Harmonization of Rules and Notification

The Court examined the apparent conflict between the language of Rule 2(l) of the CENVAT Credit Rules, 2004, and Notification No. 05/2006-CE (NT) regarding the nexus test for refund. The Circular No. 120/1/2010-ST clarified that the nexus for refund should be interpreted in harmony with the nexus for credit, which is broad and includes indirect use of input services.

The Court applied the test that if absence of such input/input service adversely impacts the quality and efficiency of the exported service, it should be considered eligible for refund. This interpretation aligns with the legislative intent of zero-rating exports and avoiding cash flow problems for exporters.

Issue 5: Claim for Refund of EC and SHEC

The appellant sought refund of Education Cess and Secondary and Higher Education Cess along with service tax refund. The Court noted that the appellant was entitled to claim credit of EC and SHEC during the relevant period and thus eligible for refund. The appellant relied on precedents such as Nu Vista Ltd. and USV Pvt. Ltd. to support this claim.

However, the Court found no merit in claims beyond the refund amount subject matter of the show cause notice and appeal proceedings, thus restricting the refund to the amount originally claimed.

Conclusions

The Court allowed the appeal to the extent of the refund claim filed by the appellant on 28.12.2012 and subject matter of the show cause notice dated 07.04.2014. The refund was to be granted in accordance with the recalculated admissible amount based on the FIRCs produced. The Court rejected the Revenue's contention that refund could be denied on grounds of inadmissible credit without Rule 14 proceedings and held that the nexus requirement for refund must be construed harmoniously with the broader nexus test for credit. The failure to produce all FIRCs was not a valid ground for rejection where sufficient FIRCs were produced to justify the refund amount claimed.

Significant Holdings

"Rule 5 ibid nowhere specifies that Cenvat credit can be denied on the ground of irregular availment or utilisation of the same. Thus, in absence of specific provisions contained in the statute, denial of the refund benefit provided under Rule 5 ibid, in our considered opinion, cannot stand for judicial scrutiny."

"In absence of any notice for recovery as provided by Rule 14 ibid the refund claimed by the assessee under Rule 5 cannot be denied."

"The phrase, 'used in' mentioned in Notification No. 5/2006-CX (NT) to show the nexus also needs to be interpreted in a harmonious manner with the provisions of Rule 2(l) of the CENVAT Credit Rules, 2004. The test is whether the absence of such input/input service adversely impacts the quality and efficiency of the provision of service exported."

"The sanctioning authorities are directed to dispose of the refund claims expeditiously based on the clarifications that the nexus for refund should not be stricter than that for credit and that input services used directly or indirectly in providing output services qualify for refund."

The Court's final determination was to allow the refund claim as originally filed, reject the grounds of inadmissibility of credit raised without Rule 14 proceedings, and require the Revenue to consider the refund claim in light of the FIRCs produced by the appellant, thereby granting the refund with applicable interest.