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2025 (7) TMI 348 - AT - Service Tax100% EOU - Erroneous refund of cenvat credit sanctioned under Rule 5 of Cenvat Credit Rules (CCR) 2004 - power of jurisdictional authority to issue impugned review order - HELD THAT - It is an admitted fact that the appellant had entered into an agreement with M/s. PSI Data Systems Ltd. and appellant being a 100% EOU cenvat credit accumulated in the credit account could not be utilised. This issue is considered by the Tribunal in the matter of Veena Industries Ltd. 2016 (1) TMI 161 - CESTAT AHMEDABAD wherein in similar circumstances it is held that it is abundantly clear that they are eligible to take cenvat credit of the service tax paid on the input service provided by the sub-contractors. Therefore we find that the appellant has rightly taken the cenvat credit on the input service provided by the sub-contractors and they have paid the applicable service tax on the output service provided by them. Therefore we find that there is no contravention on the part of the appellant in this regard. Hence the impugned orders cannot sustain in law and therefore they are set aside. Thus even if the appellant had availed the service rendered by M/s. PSI Data Systems Ltd for export of service considering the agreement entered by the appellant and considering the inward remittance received by the appellant against export made by them no finding can be concluded that the appellant has not rendered any output service but has only acted as an agent in delivering the output. Appeal allowed.
The core legal questions considered in this appeal concern the eligibility of the appellant, a 100% Export Oriented Unit (EOU) engaged in export of Information Technology Software Services, to claim refund of cenvat credit under Rule 5 of the Cenvat Credit Rules (CCR), 2004. Specifically, the issues include:
Issue-wise Detailed Analysis 1. Entitlement to Refund of Cenvat Credit on Input Services Procured via Subcontractor for Export of Services The appellant, a 100% EOU, filed a refund claim of Rs. 61,89,999/- under Rule 5 of CCR, 2004, which was initially sanctioned by the adjudicating authority. Subsequently, the department issued a show-cause notice alleging that the actual export was carried out by M/s. PSI Data Systems Ltd., and the appellant was only acting as an agent, thereby not eligible for refund of cenvat credit. The department's review order directed recovery of the refund amount with interest. The appellant contended that it was the provider of output service and had engaged M/s. PSI Data Systems Ltd. as a subcontractor to execute the service as per its direction and specification. The appellant argued that the services of PSI Data Systems were input services used in providing the output service, and thus, cenvat credit/refund was legitimately claimed under Rule 5 read with Notification No.5/2006-CE(NT) dated 14.03.2006. The appellant relied on the Service Performance Agreement, invoices, and inward remittances as evidence of export and service provision. The department, however, argued that since the output service was rendered by PSI Data Systems Ltd. and merely billed to the appellant, the appellant did not "use" the input service in providing output service, as required under Rule 2(l) of CCR, 2004. The department emphasized the strict interpretation of "use" and contended that the appellant had not added value or undergone further processing of the service, thus disqualifying it from claiming cenvat credit/refund. The Tribunal referred to the decision in Veena Industries Ltd. vs. CCE, where it was held that a service provider utilizing input services from subcontractors for providing output service is eligible to take cenvat credit of the service tax paid on such input services. The Tribunal noted that the appellant's situation was analogous, as it was undisputed that the appellant was the provider of taxable output service and the subcontractor's services were input services used in providing that output service. The Tribunal also considered other precedents cited by the appellant, including decisions from CESTAT Bangalore and Delhi, which supported the eligibility of credit/refund when input services are procured through subcontractors and used in export of services. Applying these principles, the Tribunal concluded that the appellant was entitled to the refund of cenvat credit claimed, as the appellant had rendered output service and utilized input services from PSI Data Systems Ltd. in the process. 2. Jurisdiction and Validity of the Review Order Issued Under Rule 14 of CCR, 2004 The appellant challenged the jurisdiction of the adjudicating authority to issue the review order directing recovery of the refund amount. The Tribunal, in a connected Miscellaneous Order, held that appeals against such review orders are maintainable before the Tribunal and proceeded to decide the matter on merits. The department did not dispute the maintainability but defended the review order on substantive grounds. The Tribunal, after examining the merits, found the review order unsustainable in law and set it aside. 3. Interpretation of "Input Service" under Rule 2(l) of CCR, 2004 and the Concept of "Use" in Providing Output Service Rule 2(l) defines "input service" as any service used by a provider of taxable service for providing an output service. The department argued that since the appellant did not directly render the output service but acted as an agent, the input service procured from PSI Data Systems Ltd. was not "used" by the appellant in providing output service. The appellant countered that the appellant was the provider of output service and the subcontractor's services were input services used in the provision of the output service. The appellant submitted that the subcontractor was bound to execute the service as per the appellant's directions, specifications, and responsibilities, including requirement analysis, design, development, testing, and project monitoring. The Tribunal, relying on the Veena Industries Ltd. decision, held that the appellant was covered under Rule 2(l)(ii) as a provider of taxable service using input services from subcontractors. The Tribunal rejected the department's narrow interpretation and held that the appellant had indeed "used" the input services in providing output service. 4. Procedural Issue: Department's Failure to Challenge Original Refund Sanction Order The appellant argued that the department's initiation of recovery proceedings was unsustainable because the original refund sanction order was not challenged within the prescribed time or by appropriate proceedings. The appellant cited various precedents emphasizing that once a refund order is passed and not challenged, it attains finality and cannot be reopened arbitrarily. The Tribunal acknowledged this principle and noted that the department's failure to challenge the original refund order weakened the basis for recovery. This procedural lapse reinforced the Tribunal's view that the refund claim was valid. 5. Treatment of Competing Arguments and Application of Law to Facts The department relied on a strict and literal interpretation of the statute, emphasizing the lack of direct output service provision by the appellant and the absence of value addition. It argued that the appellant should have claimed refund under other schemes such as drawback or rebate, not under Notification No.5/2006-CE (NT). The appellant countered by demonstrating contractual arrangements, control over the subcontractor's services, and receipt of export proceeds, establishing that the appellant was the true provider of output service. The appellant also relied on established case law supporting the eligibility of cenvat credit/refund in such subcontracting arrangements. The Tribunal found the appellant's arguments persuasive and consistent with legal precedents. It rejected the department's contention that the appellant was merely an agent, holding that the appellant had rendered output service and utilized input services accordingly. The Tribunal also emphasized that the burden of proof lies on the revenue to show that inputs were not consumed or used in providing output service, which was not discharged. Significant Holdings The Tribunal held: "The appellant is a provider of taxable service and have provided the same. They are utilising the input service provided by sub-contractors, while providing their output service. Therefore, it is abundantly clear that they are eligible to take cenvat credit of the service tax paid on the input service provided by the sub-contractors. Therefore, we find that the appellant has rightly taken the cenvat credit on the input service provided by the sub-contractors and they have paid the applicable service tax on the output service provided by them. Therefore, we find that there is no contravention on the part of the appellant in this regard. Hence the impugned orders cannot sustain in law and therefore, they are set aside." The Tribunal established the core principle that a service provider utilizing input services from subcontractors in the course of providing output service is entitled to claim cenvat credit/refund of service tax paid on such input services under Rule 5 of CCR, 2004 and related notifications. It further determined that the appellant's status as a 100% EOU and the contractual and operational facts demonstrated that the appellant was not merely an agent but the actual provider of output service, thus eligible for refund. The Tribunal also underscored that the department's failure to challenge the original refund sanction order and the absence of cogent evidence to disprove consumption/use of input services rendered the recovery proceedings untenable. Accordingly, the Tribunal allowed the appeal with consequential relief in accordance with law, setting aside the recovery order and affirming the appellant's entitlement to refund of cenvat credit.
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