Appellate Tribunal grants refund for service tax credit on Royalty charges

The Appellate Tribunal CESTAT BANGALORE allowed the appeal filed by a 100% EOU against the rejection of a refund claim for unutilized service tax credit on Royalty charges for Scientific and Technical Consultancy services. The Tribunal held that the service tax paid under Reverse Charge basis qualified as an input service under the Cenvat Credit Rules, emphasizing the full disclosure of credit availed by the appellant. The impugned order was set aside, and consequential relief was granted to the appellant, highlighting the importance of proper disclosure and the nexus between the service and the business for refund eligibility.

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Issues:
Refund claim rejection for unutilized credit of service tax paid on Royalty charges under Reverse Charge mechanism for Scientific and Technical Consultancy services.

Analysis:
The appeal was against the rejection of a refund claim by the Commissioner (Appeals) for unutilized credit of service tax paid on Royalty charges for Scientific and Technical Consultancy services. The appellant, a 100% EOU registered with the Central Excise Department, filed a refund claim for a specific quarter. The original authority rejected the claim citing lack of evidence of credit availed on input service and the consultancy service not being related to the appellant's business. The appellant contended that the impugned order was legally unsustainable and referenced clauses from the agreement with the service provider to establish the service's relevance to their business. The appellant argued that the consultancy services qualified as input services under the Cenvat Credit Rules and cited a relevant Tribunal decision in support. The learned consultant highlighted the full disclosure of credit availed in the ST-3 Returns and the procedural nature of not disclosing it in the ER-2 Return. The AR reiterated the findings of the impugned order.

The Tribunal, after hearing both parties and examining the submissions and judgments cited, found the impugned order unsustainable in law. The Tribunal noted the full disclosure of credit availed by the appellant and its reflection in the ST-3 Returns. It emphasized that the procedural requirement of not disclosing the credit in the ER-2 Return did not disentitle the appellant from the refund. The Tribunal also determined that the service tax paid on royalty under Reverse Charge basis for Scientific and Technical Consultancy services fell within the definition of input service under the Cenvat Credit Rules due to its relevance to the appellant's business. Consequently, the Tribunal allowed the appeal, setting aside the impugned order and granting consequential relief to the appellant.

The judgment, delivered by S. S. Garg, Judicial Member, on 28/02/2017 at the Appellate Tribunal CESTAT BANGALORE, highlighted the importance of proper disclosure of availed credit, the nexus between the service and the business, and the applicability of relevant legal provisions in determining the eligibility for a refund of service tax paid on Royalty charges under Reverse Charge mechanism for Scientific and Technical Consultancy services.

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