Rose I T Solutions Pvt. Ltd vs C.S.T. Delhi-Ii

Date of Hearing: 26/02/2015

Date of Pronouncement: 13/03/2015

(Arising out of OIA NO. 240/S.Tax/D-II/12 dated 27.12.2012 passed by the Commissioner (Appeals) New Delhi)

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

Rose I T Solutions Pvt. Ltd Appellant

Vs.

C.S.T. Delhi-II Respondent

Appearance:

Present for the Appellant: Shri K.S.N. Mohapatra (Authorized Representative)

Present for the Respondent: Shri B.B. Sharma, DR

Coram: Honble Mr.R.K.Singh, Member (Technical)

FINAL ORDER NO.50602/2015

PER: R.K.SINGH

The appellants have filed this appeal against Order-in-Appeal No.240-S.TAX-D-II-2012 dated 27/12/2012 which upheld the Order-in-Original dated 04/5/2012 in terms of which the refund of input service credit availed in respect of export of their service prior to 16.5.2008 was rejected in terms of provisions of Notification No. 5/2006-CE (NT) on the ground that the information technology software service became a taxable service from 16/5/2008 and therefore prior thereto no credit in respect of that service was admissible and no refund was admissible. The appellants have contended that

(i) they are a 100% of EOU (STPI Unit) engaged in export of Information Technology Software Services and being unable utilize Cenvat credit of service tax taken on input services used in providing an output service which was exported, they applied for refund of Rs.2,24,334/- under Notification 05/2006-CX(NT) dated 14.3.2006 issued under Rule 5 of Cenvat Credit Rules, 2004, to which they were entitled.

(ii) Rejection of their claim (of Rs.1,72,058/-) for the prior October 2007 to 16/5/2008 is not legal because they had actually paid service tax on the inputs services utilized for export of information technology software service which was not taxable during the disputed period. They citied the judgement dated 23.9.2011 of Honble Karnataka High Court in the case of mPortal India Wireless Solutions (P) Ltd Vs. C.S.T. in the CEA No. 6/2011. The appellants also referred to the Circular of the Board 54/2004-Cus dated 13/10/2004 which in Para 4 clarified as under:-

At present, EOUs (including STP/EHTP units) are allowed to import as well as procure goods from domestic tariff area without payment of duty. Therefore, there was no necessity for extending CENVAT credit facility to them. However, some EOUs have to procure their raw materials no payment of duty also. As a trade facilitation measure, it has been decided to allow EOUs (including STP/EHTP units) an option either to procure the goods from DTA without payment of duty under CT-3 procedure or to procure the goods on payment of duty and avail CENVAT credit. The credit could be utilized by them as per the Cenvat Credit Rules, 2004, including payment of duty on their DTA sales.

2. I have considered the contentions of the appellants. Rule 5 of the Cenvat Credit Rules reads as under:-

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 of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i) duty or excise on any final product cleared for home consumption or for export on payment of duty; or

(ii) service tax on output service and where for any reason such adjustment is not possible, the manufacturer or provider or output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.

It is thus evident that under Rule 5 ibid refund of Cenvat credit is allowed only in respect of input services used in providing output service which is exported. Output service during the relevant period was to mean a taxable service as per definition under Rule 2 (P) ibid. Thus it is evident that prior to 6.5.2008 the appellants were not exporting any output service and therefore Rule 5 itself is not applicable in their case. Notification 5/2006-CE(NT) which was issued under Rule 5 ibid allows refund of Cenvat credit in respect of input or input services used in providing output service which has been exported without payment of service tax. In the present case, as discussed above, the appellants were not providing output service as prior to 16.5.2008 the service exported by them was not a taxable service and hence what was exported did not qualify to be output service and therefore their case is not covered under the provisions of Notification No. 5/2006-CE(NT). Further in the given context, input or input services as per Rule 2 (k) and 2 (l) ibid are those used for providing output service.

Thus it is obvious that there can not be any input or input service for taking Cenvat credit when there is no output service provided. In the present case the appellants were not providing any output service and therefore the question of admissibility of any Cenvat credit itself simply does not arise. As regards the reference to Board Circular No.54/2004-Cus, it is seen that the said Circular makes it very clear that the EOUs have been given the facility of taking Cenvat credit but then such Cenvat credit, as is clearly mentioned there-in, is to be taken in terms of the provisions of the Cenvat Credit Rules which, as discussed earlier, do not permit taking of any Cenvat credit by the appellants when they did not provide /export any Output Service. As regards the judgement in the case of M/s mPortal India Wireless Solutions (P) Ltd passed by Honble Karnataka High Court (supra) it is seen that in that judgement the only issue decided by the Honble Court was whether the authorities were justified in refusing to grant refund of Cenvat credit to which the assessee was legally entitled only on the ground that the assessee was not registered with the department.

It is needless to say that this is not an issue in the present case and therefore, the said judgment of Honble Karnataka High Court has no applicability to this case. I have also perused the judgment of CESTAT in the case of mPortal India Wireless Solutions (P) Ltd. Vs. C.S.T. Bangalore 2010-IST-513-CESTAT-Bang. In that judgment CESTAT notes in one place as under:-

Obviously the policy of the Government is to allow STP units like the appellants Cenvat credit of duty/service tax paid on inputs/input services. This benefit is apparently not limited by provisions of the Cenvat Credit Rules. (This plea was, however, not taken by the appellant) Therefore, the appellant was entitled to take credit of service tax paid on input services.

In this regard I would like to state that the Cenvat credit is governed only and only by Cenvat credit Rules and therefore the above observation of CESTAT that this benefit is apparently not limited by provisions of Cenvat Credit Rules is devoid of any basis at all. In any case, as CESTAT itself observed that this plea was not taken by the appellant and having regard to the fact that CESTAT also gave this finding rather tentatively, as is evident form the word apparently appearing in that sentence, it can not be inferred that CESTAT laid down any ratio to be followed as a precedent.

3. In the light of the foregoing I am of a clear view that the impugned order does not suffer from any legal infirmity and therefore the same is sustained and the appeal is dismissed.

(Pronounced in the court on 13/03/2015)

(R.K. Singh)

Member (Technical)

K. Gupta

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