2025 (7) TMI 68 - AT - Service Tax

100% EOU - refund under Rule 5 of the Cenvat Credit Rule 2004 - Output Services exported by the appellant is taxable w.e.f. 16.05.2008 - Credit availed on debit notes - prescribed document under Rule 9 (1) of the Cenvat Credit Rules 2004 or not. HELD THAT - As regarding the finding given by the First Appellate Authority related to taxability of the service this Tribunal has considered the issue in the matter of M/s. Symphony Marketing Solutions India Pvt. Ltd. 2024 (12) TMI 1302 - CESTAT BANGALORE and following the judgments of the Hon ble High Court of the Karnataka in the matter of mPortal India Wireless Solutions Pvt. Ltd. 2011 (9) TMI 450 - KARNATAKA HIGH COURT allowed the appeal. As regarding the validity of the debit note the debit note submitted by the appellant and it contains essential particulars as required under Rule 9 (2) of the Cenvat Credit Rule 2004 is gone through - This issue was considered by this Tribunal in the matter of Oracle India Private Limited 2025 (1) TMI 222 - CESTAT BANGALORE and it is held that We find that the debit notes contain the essential particulars as required under Rule 9 (2) of the Cenvat Credit Rules 2004. Further these debit notes are accounted in the books of accounts of the appellant. Therefore we find that the appellant has fulfilled the requirements under Rule 4A of Service Tax Rules 1994 and Rule 4 (7) and 9 (2) of CCR 2004. Therefore the denial of Cenvat credit on the debit notes is unsustainable. The impugned order is unsustainable - Appeal allowed.

Summary

The core legal questions considered in this appeal pertain to the entitlement of refund under Rule 5 of the Cenvat Credit Rules, 2004, specifically in the context of a 100% Export Oriented Unit (EOU) exporting services. The issues are:

(i) Whether refund of Cenvat credit can be claimed for the period prior to the date when the output services became taxable (i.e., before 16.05.2008);

(ii) Whether credit availed on the basis of debit notes is valid under the Cenvat Credit Rules, 2004, given that debit notes are not explicitly prescribed documents under Rule 9(1) of the said Rules.

Issue 1: Refund Prior to Taxability of Output Services

The legal framework involves Rule 5 of the Cenvat Credit Rules, 2004, which governs refund claims of Cenvat credit on inputs and input services used in the manufacture of exempted goods or provision of exempted services. The question is whether refund can be claimed for services exported before the date such services became taxable.

Precedents relied upon include the judgment of the Hon'ble High Court of Karnataka in mPortal India Wireless Solutions Pvt. Ltd. v. C.S.T., Bangalore, and various decisions of this Tribunal, notably M/s. Symphony Marketing Solutions India Pvt. Ltd. v. C.C.Ex., which have held that refund claims prior to the taxable period are maintainable if the appellant is an EOU exporting services.

The Court interpreted that the output services exported by the appellant became taxable only from 16.05.2008. The adjudicating authority had rejected refund claims prior to this date on the ground that the services were not taxable then. However, the Tribunal, following the Karnataka High Court and its own prior decisions, held that the appellant is entitled to refund even for the period prior to 16.05.2008, as the appellant is a 100% EOU and the refund provisions apply accordingly.

This reasoning reflects the principle that the Cenvat credit and refund regime for EOUs is to be construed liberally to avoid undue hardship, and that the taxability date of the output service does not bar refund claims for input credits legitimately availed during the relevant period.

The Tribunal thus concluded that the finding of the First Appellate Authority on this issue was unsustainable.

Issue 2: Validity of Credit Availment Based on Debit Notes

The second issue concerns whether debit notes qualify as valid documents for availing Cenvat credit under Rule 9(1) of the Cenvat Credit Rules, 2004, which prescribes the documents on the basis of which credit can be taken. The Adjudicating Authority and the First Appellate Authority rejected credit availed on debit notes, holding that debit notes are not prescribed documents under Rule 9(1).

The appellant contended that the proviso to Rule 9(2) of the Cenvat Credit Rules allows credit to be taken based on any document containing essential particulars such as duty or service tax paid, description of goods or taxable services, and the names and addresses of supplier and receiver. The debit note submitted dated 30.06.2008 contained all such particulars.

The Tribunal referred to its earlier decision in M/s. Oracle India Private Limited v. Commissioner of Central Excise, where it was held that once the veracity of the debit note is established and the debit note contains the essential particulars, denial of credit on debit notes is not sustainable. The Tribunal quoted:

"As regards, availing CENVAT credit based on the debit notes issued by the service providers, we find that the services were received by the appellant and the payment for the services are also made to the service providers. We find that the debit notes contain the essential particulars as required under Rule 9 (2) of the Cenvat Credit Rules, 2004. Further, these debit notes are accounted in the books of accounts of the appellant. Therefore, we find that the appellant has fulfilled the requirements under Rule 4A of Service Tax Rules, 1994 and Rule 4 (7) and 9 (2) of CCR, 2004. Therefore, the denial of Cenvat credit on the debit notes is unsustainable."

The Tribunal also relied on decisions from other jurisdictions supporting the validity of debit notes as documents for credit claims, including C.C.Ex., Jaipur v. Bharti Hexacom Ltd. and Tiara Advertising v. Union of India.

Applying these principles to the facts, since the debit notes submitted by the appellant contained all required particulars and were accounted for in the appellant's books, the Tribunal held that credit availed on debit notes was valid and the rejection thereof was unsustainable.

Treatment of Competing Arguments

The Adjudicating Authority and First Appellate Authority had taken a restrictive view on both issues, denying refund prior to taxable period and disallowing credit on debit notes. The appellant challenged these findings by relying on authoritative judicial precedents and the statutory proviso to Rule 9(2). The Tribunal carefully examined the legal provisions, the debit notes submitted, and the relevant case law, ultimately rejecting the restrictive interpretations and allowing the appeal.

Conclusions

The Tribunal concluded that:

(i) Refund claims under Rule 5 of the Cenvat Credit Rules, 2004, by a 100% EOU exporting services are maintainable even for the period prior to the date when the output services became taxable, following the Karnataka High Court judgment and Tribunal precedents;

(ii) Debit notes containing essential particulars as required under Rule 9(2) of the Cenvat Credit Rules, 2004, and accounted for in the appellant's books, are valid documents for availing Cenvat credit, and denial of credit on this ground is unsustainable.

Accordingly, the impugned orders rejecting the refund claims and disallowing credit on debit notes were set aside, and the appeals were allowed with consequential relief.

Significant Holdings

"As regards, availing CENVAT credit based on the debit notes issued by the service providers, we find that the services were received by the appellant and the payment for the services are also made to the service providers. We find that the debit notes contain the essential particulars as required under Rule 9 (2) of the Cenvat Credit Rules, 2004. Further, these debit notes are accounted in the books of accounts of the appellant. Therefore, we find that the appellant has fulfilled the requirements under Rule 4A of Service Tax Rules, 1994 and Rule 4 (7) and 9 (2) of CCR, 2004. Therefore, the denial of Cenvat credit on the debit notes is unsustainable."

This principle establishes that debit notes, if containing all prescribed particulars and properly accounted for, are valid documents for credit claims under the Cenvat Credit Rules, 2004.

Further, the Tribunal affirmed the principle that refund claims by EOUs for periods prior to the taxable date of output services are maintainable, reinforcing a pro-taxpayer interpretation consistent with judicial precedents.