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2016 (9) TMI 142 - CESTAT MUMBAI

2016 (9) TMI 142 - CESTAT MUMBAI - TMI - Refund claim CENVAT credit STP - consulting engineer service - discipline of computer hardware engineering or computer software engineering - no unutilized CENVAT credit could have existed as the credit column in the ST-3 returns pertaining to the period of refund claim was blank Held that: - The export of software, in a 100% EOU, at the relevant point of time was not a taxable service. However, the assessee had paid input tax on various services. T .....

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h a tax administrator can step in to rule that tax is not leviable, except on a claim by an entity to non-exigibility. There is no allegation of short-levy of tax against the appellant and the appellant has not made a claim that they are not liable to tax. The liability to pay tax having been accepted and the assertion that the taxable services are exempt only by reason of export having been accepted - Revenue cannot, take a stand that the service for which registration has been taken is not tax .....

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es, 2004, are before us. One refund of ₹ 45,08,047/- pertains to the period between January 2006 and March 2006 while the other for ₹ 4,49,65,933/- pertains to the period between April 2006 and March 2007. Acknowledging that some of the services rendered by appellant are exempt, the refund claim was limited to such proportion as were attributable to export of management consultancy service , management, maintenance and repair service , business auxiliary service and technical testing .....

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accounts not having been maintained in consequence. The first appellate authority concurred with the lower authority on re-classification and, therefore, held that there was no scope for accumulation of credit. In doing so, the impugned order has posited that declaration of classification may be re-opened for scrutiny at any time and the assessee is not entitled to presumption of acceptance of declared classification as sufficient evidence of exigibility to tax. 2. The appellant is a unit regis .....

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pellant is not subject to CENVAT Credit Rules, 2004. Learned Special Counsel for Revenue insists that the services being in the nature of consulting engineer services is not taxable owing to the specific exclusion and hence contends that the two lower authorities have applied the provisions of law appropriately. Learned Counsel for appellant argues that the appellant was eligible for refund as tax had been paid on input services used in exports and as procedural infirmities cannot imperil the su .....

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to be remanded back for ascertainment that the claim for refund did relate to this activity. We are, in consequence, and regrettably so, bereft of that precedential wisdom in disposing off this appeal. 4. On perusal of the refund claims that are now in dispute we find that details of input services are enumerated therein. The computation has taken into account the proportionality attributable to the taxable services that were exported. Needless to say, the claims were preferred on the assumption .....

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ive. It would, therefore, appear that status of being exempted or otherwise is restricted solely to services that have been rendered in the domestic territory. As has been pointed out in the show cause notice and order-in-original, the ST-3 returns do not declare the quantum of CENVAT credit; that does not, however, detract from the eligibility for refund for two especial reasons: first, the provisions of rule 5 of CENVAT Credit Rules, 2004 do not insist on such a pre-requisite and, second, that .....

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ess of the exercise in classification undertaken by the two lower authorities. Before we get down to examining the rival contentions in this dispute, it would not be out of place to revisit the scheme of CENVAT credit, as it affects exporters, to comprehend the perspective, as it were, that we consider essential for an outcome with some semblance of finality. 6. That taxes are not exported is almost axiomatic. Not only do they distort the international marketplace but such loading of taxes on pr .....

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n of war - and is, therefore, abhorrent. It is also impossible to enforce. Even a tax on exports, as an instrument of disincentive, is borne by the entity in the taxing jurisdiction being the intended object of the tax measure. Tax embedded in exported products or services lacks even that saving grace - by taxing the recipient in another jurisdiction or the incongruity of placing the tax burden on the supplier who is not the intended object of the tax either. Hence, all tax systems provide the w .....

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tion technology that, in this era of global operations, enables overseas entities to be serviced from India in furtherance of their business goals. Typically, some aspect of their activities, being programmable, are run from remote locations using hardware at both ends, a communication interface connecting the two and command systems to set a process in motion. It is generally believed to be of mutual advantage to the provider and the recipients who so contract. Typically too, the contracts subs .....

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s levy of tax on services enumerated in section 65(105) and empowers the Central Government to exempt any taxable service with or without conditions. In accordance with the fundamental principle of taxation, tax levy is restricted to activities within the borders and the Export of Service Rules, 2005 has been notified in exercise of, inter alia, the exemption powers under section 93 of Finance Act, 1994 to limit taxability to the borders explicitly by rule 3 therein. Owing to the peculiarity of .....

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e manner in which burden of tax is neutralized for exports. 10. In the context of the dispute before us, the relevant provisions of the said rule is reproduced below: Rule 5.Refund of CENVAT credit. 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 .....

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cified, 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. Provided further that no credit of the additional duty leviable under .....

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of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions 'provider' and 'provided' shall be construed accordingly; 11. Likewise, rule 4 and 5 of Export of Service Rules, 2005 deal with exemption of tax on output service and rebate of tax paid on output service as well as on inputs used in providing output service respectively. These are the only two provisions in existence for tax neutralization in export o .....

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elation to exports is among the specifically enumerated. It is, therefore, understandable that these Rules, being exemptions from levy accorded to export of services, would restrict itself to taxable services. However, considering the critical importance that exports have in policy formulation of the Central Government, there can be no doubt that some provision should exist or has been intended as the framework for refund of taxes that exported services have had to bear. Even if exported service .....

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toms Act, 1962 neutralises tax or duties on inputs or services even where the exports are not excisable. It is, in the context of such an imperative in relation to export of services, that the scheme of CENVAT credit must be seen and interpreted. 13. CENVAT Credit Rules, 2004 has been notified under section 94 of Finance Act, 1994 and section 37 of Central Excise Act, 1944. These are the provision that confer general power of rule making on the Central Government. The said Rules are not relatabl .....

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capital goods are removed as such; or (d) an amount under sub rule (2) of rule 16 of Central Excise Rules,2002; or (e) service tax on any output service: CENVAT credit is not the mechanics of implementing an exemption from duty but is a manner of meeting tax obligations. The most obvious method of doing so is payment from accumulated value which, by universal acclaim, is measured as money. In India, money or rupee is accorded that statutory status as exchange for all, and any kind of, transacti .....

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ion in tax administration and relegates legislative intent to the bin of broken promises. 14. It is acknowledged that the appellant is registered under Service Tax Rules, 1994 as provider of services and it is amply clear from the statutory records that the appellant has been discharging tax liability too. Eligibility to take CENVAT Credit in accordance with rule 3(1) cannot, therefore, be denied. There is no evidence on record to show that input services to the extent recorded has not been rece .....

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each thereof penalized by specifically enumerated penalties that, however, do not include erasure of credit earned. No action appears to have been initiated against the appellant for alleged breach in maintenance of records. On the contrary, the meticulousness in the listing of credit claimed in the documents annexed to the claims for refund would indicate substantial, if not total, compliance. The original authority has, without valid reason, ventured to surmise that there was no credit accumul .....

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llant as provider of taxable service to take and avail CENVAT Credit even if the adjudicating authority has, with unconcealed lack of grace, brushed it aside as lacking sanctity owing to it being a self-assessed act. That same disdain is apparent in the disinclination to acknowledge the registration which is also dismissed as a voluntary act. Apparently, in the mind of the tax administrator empowered under a taxing statute, enacted by the sovereign legislative organ of the State, with a scheme o .....

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ze the accumulated credit can be examined. The two lower authorities did not even proceed to this step and we, therefore, do so. Appellant is a unit registered under the Software Technology Park scheme; the contours of this scheme are laid out in the Foreign Trade Policy and the appellant is required to be, primarily, an exporter. That it is not has not been substantiated by any evidence. We are satisfied that the monitoring mechanism of the scheme is robust and diligent enough to prevent any at .....

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NVAT credit relating to input services availed for rendering services that are exported represents tax that should not have been collected; however, for the convenience of administering tax, exemption through refund is an accepted practice. To discover new and diverse means of frustrating that intent, particularly in the face of judicial interpretation to the contrary, is a travesty of obligations under the taxing statute. It would appear that both the lower authorities did indulge in the misadv .....

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t of the operations of the appellant. According to them, it is the rendering of an output service that accords access to the scheme of CENVAT Credit Rules, 2004 and the appellant, again according to them, does not render output service as development of computer software and consulting in relation to computer software were, during the relevant time, not taxable. On this set of facts, appellant has no ground to cavil; neither can we fault them for this statement of fact. However, the relevancy of .....

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mit returns, attempting a foray of the fundament by the two lower authorities is not only not sanctified by law but is akin to excavation of the foundation after the superstructure is erected - a pointless exercise that only places impediments in the operations of a contributor to the foreign exchange reserves of the country and a provider of daily bread to thousands. With the registration and subsequent compliance with Finance Act, 1994 and Service Tax Rules, 1994, the appellant is, clearly and .....

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s not subject to any other rule or provision of the Rules. The criteria for refund are existence of accumulated credit, insufficient opportunity for utilization thereof and limiting the extent of refund to the proportion that export turnover bears to total turnover. 21. Learned Special Counsel for respondent places particular reliance on the decisions of the Tribunal in Phoenix IT Solutions Ltd v. Commissioner of Central Excise, Vishakapatnam [2011 (22) STR 400 (Tri-Bang)] and Kasturi & Sons .....

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cisions of the Tribunal have held that rule 5 of CENVAT Credit Rules, 2004 is the mechanism for refund of any tax on inputs/input services used by an exporter. These have followed the affirmation of the decision of the Tribunal by the Hon ble High Court of Karnataka in mPortal India Wireless Solutions (P) Ltd v Commissioner of Service Tax, Bangalore [2012 (27) STR 134 (Kar)]. Taking note of the denial of eligibility for refund on the ground of non-taxability of software exports by the original a .....

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entitled to the refund of Cenvat credit…. While refuting the applicability of this judgment in deciding the appeals of Apotex Research Pvt Ltd & Others v Commissioner of Customs & Others [2014-TIOL-1836-CESTAT-BANG], the stand of Revenue was made clear thus 6.12 … … …Learned A.R. on behalf of the Revenue submitted that this decision was given in the case of 100% E.O.U. and therefore applying the same to other units which are not 100% E.O.U. was not correct&he .....

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nt mPortal India Wireless Solutions P. Lt. was also a 100% EOU and the transactions undertaken are also identical in the sense that they relate to export of software. Therefore, the above decision is squarely applicable to the facts of the case before us. In any case, the object of the EXIM Policy of the Government of India is to promote exports of goods and services and not export of taxes. Service Tax being a destination based consumption tax, in the case of exports there should not be any tax .....

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it Rules, 2004, as clarified supra, and the judicial findings enumerated above would make it amply apparent that the lower authorities have exceeded the scope of rule 5 to deny the refund claim of an exporting unit. 24. Before parting with this matter, we must also address the second issue for determination, viz., the scope for re-classification. Tax on services is levied at a uniform rate and the sole issue in classification is taxability or otherwise. The onus for determining taxability is squ .....

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