2017 (3) TMI 378 - AT - Service Tax

Tribunal rules in favor of appellant on CENVAT credit reversal, supporting exemption and refund claim.

The Tribunal ruled in favor of the appellant, holding that the reversal of CENVAT credit before filing the refund claim aligned with the notification's ... Reversal of CENVAT credit - entitlement to refund of service tax for SEZ units - condition 2(g) of Notification No. 17/2011 ST - tax free treatment of services to SEZ - reversal amounts to non taking of creditCondition 2(g) of Notification No. 17/2011 ST - reversal of CENVAT credit - reversal amounts to non taking of credit - entitlement to refund of service tax for SEZ units - Whether taking CENVAT credit and subsequently reversing it before claiming refund satisfies condition 2(g) of Notification No. 17/2011 ST so as to entitle a SEZ unit to refund of service tax paid on specified services - HELD THAT: - The Tribunal applied the principle, as affirmed by the Supreme Court in Precot Meridian Ltd. and earlier authorities (including the five Member Bench in Franco Italian Co. and Hello Minerals Water), that reversal of Modvat/CENVAT credit is to be treated as non taking of the credit for purposes of claiming exemption or refund. The appellant, a SEZ unit, had initially availed CENVAT credit, subsequently reversed the entire credit balance before prosecuting the refund claim and relied on these precedents. The Revenue's contention that a SEZ specific notification condition must be treated differently was not accepted: the condition in Notification No. 17/2011 ST is similar in substance to those considered in the cited authorities, and the departmental representative did not demonstrate any legal distinction making reversal insufficient. Applying the cited ratio, reversal of the CENVAT credit fulfilled the substantive requirement of non utilisation of credit and therefore did not disentitle the appellant from refund of service tax on specified services. [Paras 7, 9]The rejection of the refund claim was set aside and the appeal allowed; consequential reliefs granted if any.Final Conclusion: Reversal of CENVAT credit prior to claim for refund satisfies the substantive requirement of Notification No. 17/2011 ST; the impugned rejection of the refund claim for April, 2012 to June, 2012 is set aside and the appeal is allowed with consequential reliefs. Issues:Refund claim rejection based on violation of Notification No. 17/2011-ST condition 2(g) - SEZ unit taking CENVAT credit on specified services - Reversal of credit before filing refund claim.Analysis:The appellant, a SEZ unit providing Software development and Training services, obtained centralized registration for IT Software Services and Training. The appellant filed a refund claim for service tax paid on specified services in line with Notification No. 17/2011-ST. However, the claim was rejected as the appellant had initially taken CENVAT credit on specified services, which was later reversed along with interest. The appellant's refund claim for Rs. 13,34,178/- for April-June 2012 was turned down by the adjudicating authority and Commissioner (Appeals) due to taking CENVAT credit on input services.The appellant argued that despite initially availing CENVAT credit, they reversed it before filing the refund claim. The appellant contended that they had reversed the entire credit balance before submitting the claim. The appellant cited the case of CCE & Cus Vs. Precot Meridian Ltd. to support their position that reversal of CENVAT credit makes them eligible for a refund. Other judgments like Hello Minerals Water (P) Ltd. and CST Ahmedabad vs. Amola Holdings Pvt. Ltd. were also referenced to emphasize the validity of the refund claim.On the contrary, the Respondent argued that the appellant violated the condition in Notification No. 17/2011-ST by taking CENVAT credit on specified services used in SEZ operations. The Respondent contended that even though the credit was reversed later, the violation of the notification's condition rendered the refund inadmissible. The Respondent highlighted that the appellant informed about credit reversal after filing the refund claim, indicating non-compliance with the notification's terms.The Tribunal analyzed the issue of whether the appellant fulfilled condition 2(g) of Notification 17/2011-ST by taking and reversing CENVAT credit before the refund claim. Citing the case of Precot Meridian Ltd., the Tribunal noted that reversal of MODVAT credit could signify non-utilization, making the assessee eligible for exemption. The Tribunal found merit in the appellant's argument, supported by legal precedents, that reversal of credit equates to non-utilization, thus justifying the refund claim. The Tribunal held that the rejection of the refund was unwarranted, setting aside the impugned order and allowing the appeal with consequential reliefs.In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the reversal of CENVAT credit before filing the refund claim aligned with the notification's requirements, entitling the appellant to the refund. The judgment underscored the principle that reversal of credit signifies non-utilization, supporting the appellant's claim for exemption and refund.