Appeals allowed refund of Cenvat credit on input services used in exported services Rule 3(1) independent of Rule 3(2)

CESTAT Bangalore - AT allowed the appeals and directed refund of Cenvat credit on input services used in exported services. The Tribunal held that Rule 3(1) does not require receipt of payment in convertible foreign exchange and is independent of Rule 3(2); therefore the appellants' services qualified as export. For the period before 01.03.2007 the notification did not impose the foreign-exchange receipt condition. Payments received in foreign exchange by a local agent were treated as received by the exporters, and denial of refund would amount to taxing exports; consequential relief was granted.

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Issues Involved:
1. Refund of credit on input services utilized in the service exported.
2. Requirement of receiving payment in convertible foreign exchange for eligibility of refund.
3. Interpretation of Rule 5 of Cenvat Credit Rules and Rule 3 of Export of Service Rules, 2005.

Issue-wise Detailed Analysis:

1. Refund of Credit on Input Services Utilized in the Service Exported:
The appellants sought a refund of credit on input services utilized in exporting services. The Revenue denied a portion of the refund, arguing that the payment for services was not received in convertible foreign exchange, a requirement under Rule 5 of the Cenvat Credit Rules and Notification 5/2006-CE (NT).

2. Requirement of Receiving Payment in Convertible Foreign Exchange:
The Revenue's argument hinged on the fact that the appellants received payments in Indian Rupees from Satyam (India), who acted as their agent, rather than directly in foreign exchange. The appellants contended that the services were indeed rendered to foreign clients, and the payments were initially made in US Dollars to Satyam, who then converted and paid the appellants in Indian Rupees after deducting a commission.

3. Interpretation of Rule 5 of Cenvat Credit Rules and Rule 3 of Export of Service Rules, 2005:
The Tribunal examined the Export of Service Rules, 2005, and subsequent amendments to determine if the appellants were required to receive payments directly in foreign exchange to qualify for the refund. Initially, Rule 3 (3) (ii) (i) required that the recipient of the taxable service must be located outside India and the payment received in convertible foreign exchange, but only if the recipient had an establishment in India.

Key Findings:
- Rule 3 (3) (ii) (i): The Tribunal noted that the appellants' service recipients did not have any establishment in India, thus the condition of receiving payment in foreign exchange was not applicable.
- Amendments and Notifications: Subsequent amendments (Notification No. 28/2005-ST, 13/2006-ST, and 2/2007-ST) were analyzed. It was found that the condition of receiving payment in foreign exchange became mandatory only from 01.03.2007. Since the refund claim period was prior to this date, the appellants were not required to meet this condition.
- Agency Relationship: The Tribunal recognized Satyam (India) as an agent for the appellants, receiving payments on their behalf. It was held that the payment received by Satyam in foreign exchange should be considered as payment received by the appellants.

Conclusion:
The Tribunal concluded that the appellants were entitled to the refund of input credit as they satisfied the conditions of Rule 3 (1) of Export of Service Rules, 2005, and the condition of receiving payment in foreign exchange was not applicable for the period in question. The appeals were allowed with consequential relief.

Operative Portion:
The Tribunal pronounced the operative portion of the order in open Court, allowing the appeals with consequential relief.

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