2016 (8) TMI 130 - AT - Service Tax

Appeal Dismissed due to Lack of Nexus Between Input Services and Exports

The Tribunal dismissed the appeal as the appellant failed to establish the required nexus between input services and exported goods. Most credit claims ... Nexus between input services and exported goods - one-to-one correlation between inputs and outputs - refund of Cenvat credit under Notification No.5/2006-CE(NT) - admissibility of credit for input services availed prior to entitlement - requirement of departmental verification and compliance with remand directionsRequirement of departmental verification and compliance with remand directions - nexus between input services and exported goods - Whether the Assistant Commissioner complied with the Commissioner (Appeals) remand directions and properly examined the nexus between the input/services and the goods exported during the relevant quarter. - HELD THAT: - The Commissioner (Appeals) had specifically remanded the matter for, inter alia, examination of whether the accumulated credit pertained to inputs/input services gone into production of goods exported during the same quarter and whether the cost of such services was included in the assessable value. The Assistant Commissioner did not answer this question and instead proceeded on the basis that no one-to-one correlation was required. The Tribunal distinguishes the concept of one-to-one correlation (relating to linking inputs consumed in a period with outputs of that period) from the separate requirement of nexus (whether the inputs/services were in fact used for the specific goods exported). Services are ordinarily consumed immediately and cannot be carried forward for use in goods exported in a later quarter; where services were availed in 2004-2006 and the exports claimed relate to January-March 2007, the Assistant Commissioner failed to establish the necessary nexus as directed. For these reasons the Assistant Commissioner did not properly discharge the remand directions and did not make the requisite findings on nexus and inclusion in assessable value. [Paras 7]Remand directions were not complied with; the Assistant Commissioner failed to examine or record requisite findings on nexus between the input services and the exported goods.Refund of Cenvat credit under Notification No.5/2006-CE(NT) - admissibility of credit for input services availed prior to entitlement - one-to-one correlation between inputs and outputs - Whether the refund of Cenvat credit could be sanctioned in respect of service tax credits availed in the period prior to the date from which credit for input services was permitted, and whether Circulars relied upon justified the grant. - HELD THAT: - Notification No.5/2006 provides for refund of Cenvat credit in respect of inputs or input services used in or in relation to manufacture of final products cleared for export. Prior to 14/03/2006 (and specifically under earlier notifications/rules) refund of Cenvat credit in respect of input services was not permissible. The record shows that a substantial part of the credit claimed pertains to periods prior to 1/03/2006 when credit for service tax paid on services used for manufacture of exported goods was not allowable. The CBEC Circulars relied upon (including paras 3.2.1 and 3.3 of Circular No.120/01/2010-ST) clarify procedural simplifications and treatment of credit taken in an earlier quarter where there were no exports in that quarter, but do not validate allowance of refunds where the underlying entitlement to credit for the relevant earlier periods did not exist. The appellants did not show that they had no exports in the periods when the credits were availed so as to invoke the illustrative accommodation in the Circular. Consequently the claim could not be sustained on the basis asserted. [Paras 7, 8]Credits availed in periods prior to the date from which input service credit was permitted are not admissible for refund under Notification No.5/2006; the claim based on pre-entitlement periods cannot be upheld.Final Conclusion: The appeal is dismissed as the Assistant Commissioner failed to discharge the remand directions by establishing the requisite nexus between the input services and the exported goods, and because much of the claimed service-credit pertains to periods prior to entitlement for refund of input services under the relevant notification. Issues Involved:1. Denial of Refund Claim.2. Classification of Services.3. Nexus Between Input Services and Exported Goods.4. Documentary Evidence and Verification.5. Compliance with Rule 5 of Cenvat Credit Rules.6. Timeliness of Refund Claim.7. Applicability of Circulars and Notifications.Detailed Analysis:1. Denial of Refund Claim:The appellant filed a refund claim under Rule 5 of the Cenvat Credit Rules, 2004, which was initially denied by the Deputy Commissioner on grounds of insufficient evidence linking the services to exports. The Commissioner (Appeals) remanded the case for re-evaluation, but the Assistant Commissioner’s subsequent order sanctioning the refund was again challenged by the Revenue, leading to the current appeal.2. Classification of Services:The Commissioner (Appeals) directed the Assistant Commissioner to identify the correct classification of services on which Service Tax credit was availed. The Assistant Commissioner complied with this directive and concluded that input credit, except for club and association services, was admissible under the Cenvat Credit Rules.3. Nexus Between Input Services and Exported Goods:The core issue was whether the accumulated credit pertained to inputs used in the production of goods exported during the same quarter. The Assistant Commissioner did not provide specific findings on this point, instead relying on Circular No.120/01/2010-ST, which states that there is no need for one-to-one co-relation between input services and exported goods. However, the Tribunal noted that services availed in 2004-2006 could not be linked to exports made in January-March 2007, as services are consumed immediately and cannot be stored.4. Documentary Evidence and Verification:The Commissioner (Appeals) required the Assistant Commissioner to verify documents and provide proper reasoning for the admissibility of input services. The Assistant Commissioner failed to examine the necessary documents and did not provide findings on observations (iv) and (viii) regarding the inclusion of service costs in the assessable value and the nature of catering services.5. Compliance with Rule 5 of Cenvat Credit Rules:The Tribunal emphasized that the Assistant Commissioner did not properly address whether the conditions of Notification No.05/2006-CE (NT) were satisfied, specifically the nexus between input services and exported goods. The Tribunal highlighted that the CBEC Circular’s provision for self-certification does not address the nexus issue.6. Timeliness of Refund Claim:The Revenue argued that the refund claim was barred by limitation, as services were availed in 2004-2006, but the refund was filed in 2007. The Tribunal noted that prior to 14/03/2006, refunds of service tax credit were not permissible under Rule 5 of the Cenvat Credit Rules, making most of the appellant’s credit claims inadmissible.7. Applicability of Circulars and Notifications:The appellant relied on Circular No.120/01/2010-ST and case law to argue against the need for one-to-one co-relation. However, the Tribunal clarified that while one-to-one co-relation is not necessary for availing credit, the nexus between inputs/services and exported goods is crucial. The Tribunal found that the appellant did not demonstrate that the services availed in 2004-2006 were used for exports in 2007, and thus, the conditions of the relevant notifications were not met.Conclusion:The Tribunal dismissed the appeal, concluding that the appellant failed to establish the necessary nexus between the input services and the exported goods, and most of the credit claims pertained to a period when such refunds were not permissible. The appeal was deemed not maintainable.