2014 (5) TMI 616 - AT - Service Tax

Tribunal allows appeal for Cenvat credit on exported services. Time-barred demand and penalties overturned.

M/s. IBM Daksh Business Process Services Private Ltd. Versus CCE, Delhi-III

The Tribunal allowed the appeal, setting aside the impugned order. The appellant was entitled to Cenvat credit for input services used in providing Call ... CENVAT Credit - Business Auxiliary Services - notification no.8/2003-CE dated 20.06.2003 - whether the appellant would be eligible for cenvat credit availed by them in respect of various input service used in or in relation to the providing of Call Centre Service and BPO service which had been exported - Held that:- From a perusal of the Rule 5, it will be seen that this rule is applicable when any input or input service has been used in providing output service which is exported. The term ‘output service’ as defined in Rule 2(p) of the Cenvat Credit Rules, 2005 during the period of dispute, means any taxable service provided by the provider of taxable service to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expression ‘provider’ and ‘provided’ shall be construed accordingly. In terms of explanation to Rule 2 (p), if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service tax for which he is liable to pay service tax shall be deemed to be the output service. Thus, in terms of definition of ‘output service’ in Rule 2 (p) of the Cenvat Credit Rules, 2004, the ‘output service’ has to be a ‘taxable service’. A ‘taxable service’ is the one in respect of which, in terms of the provisions of Section 66 of the Finance Act, 1994, the tax at the prescribed rate is required to be paid and these services are those services which are specified in various clauses of Section 65(105). A service which is not specified in any of the clauses of Section 65(105) of the Finance Act, 1994, could not be treated as a ‘taxable service’ during the period of dispute. Since BPO service which was provided by the appellant to their offshore client and which involved transaction processing and the processing of mediclaims, etc. was not a taxable service during the period of dispute and it became taxable as ‘Support Service for business of Commerce’ w.e.f. 1.5.2006 under Section 65(105)(zzzq) read with Section 65(104) (c) ibid, during the period of dispute, this service would not be covered by the provisions of Rule 5 of the Cenvat Credit Rules, 2004 and accordingly, the cenvat credit would not be available in respect of inputs or input services used in or in relation to providing of this service, whether for offshore clients or for domestic clients. Therefore, the appellant were not entitled for cenvat credit of service tax paid on input services used in or in relation to providing of the BPO service during the period of dispute, even if the same had been exported. When the department accepts that the appellant under their letter dated 9.3.2007 had submitted the required information about export of service and availment of cenvat credit in respect of the input service during the period of dispute, they cannot be accused of having suppressed this information from the department with intent to evade service tax by wrongly availing the cenvat credit. The ST-3 returns filed by an assessee are, after all, required to be scrutinized by the concerned range officers/Asstt. Commissioner - longer limitation period would not be applicable to the department and as such, the entire demand for wrongly availed cenvat credit would be time barred - Decided in favour of assessee. Issues Involved:1. Eligibility of Cenvat credit for input services used in providing Call Centre Services (Business Auxiliary Services) and BPO services exported out of India.2. Classification of BPO services as Business Auxiliary Services or Business Support Services.3. Applicability of Rule 5 of the Cenvat Credit Rules, 2004.4. Invocation of the extended period for demand under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994.5. Imposition of penalties under Rule 15 of the Cenvat Credit Rules, 2004 read with Sections 77 and 78 of the Finance Act, 1994.Detailed Analysis:1. Eligibility of Cenvat Credit:The appellant provided various taxable services, including Business Auxiliary Services (Call Centre Services) and BPO services, both domestically and to offshore clients. The dispute pertains to the period from April 2005 to March 2006, during which the appellant availed Cenvat credit of Rs. 4,95,56,617/- on input services used for providing export services. The department contended that since Call Centre Services were exempt from service tax under Notification No. 8/2003-CE and BPO services were not taxable until 1.5.2006, the appellant was not eligible for Cenvat credit. The Tribunal held that the appellant was entitled to Cenvat credit for Call Centre Services exported, as per Rule 5 of the Cenvat Credit Rules, 2004, supported by judgments in similar cases (Zenta Pvt. Ltd., Dell International Services India Pvt. Ltd., and mPortal (India) Wireless Solutions Pvt. Ltd.).2. Classification of BPO Services:The appellant classified BPO services involving mediclaim processing and transaction processing as Business Auxiliary Services. However, the Tribunal disagreed, holding that these services fell under Business Support Services, taxable from 1.5.2006. Therefore, BPO services were not taxable during the disputed period.3. Applicability of Rule 5 of the Cenvat Credit Rules, 2004:Rule 5 allows Cenvat credit for input services used in providing exported output services. The Tribunal found that for Call Centre Services, the appellant was eligible for Cenvat credit, as these services were exported. However, for BPO services, since they were not taxable during the disputed period, Rule 5 was not applicable, and Cenvat credit was not admissible.4. Invocation of Extended Period:The show cause notice was issued on 23.10.2009 for the period from 1.4.2005 to 28.02.2006, invoking the extended period for demand. The Tribunal noted that the appellant had disclosed the relevant information regarding export of services and Cenvat credit in a letter dated 9.3.2007. The Tribunal held that this disclosure negated the allegation of suppression of facts, making the extended period inapplicable. Consequently, the demand was time-barred.5. Imposition of Penalties:Given the Tribunal's findings that the appellant was eligible for Cenvat credit for Call Centre Services and that the demand for BPO services was time-barred, the penalties imposed under Rule 15 of the Cenvat Credit Rules, 2004 read with Sections 77 and 78 of the Finance Act, 1994, were also set aside.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order, and disposed of the stay application. The appellant was entitled to Cenvat credit for input services used in providing Call Centre Services exported out of India but not for BPO services during the disputed period. The demand for wrongly availed Cenvat credit was time-barred due to the appellant's disclosure of relevant information.