2017 (11) TMI 416 - AT - Service Tax

Tribunal Upholds Decision on Cenvat Credit Refund for Exported Services

The Tribunal upheld the decision rejecting the appellant's refund claim for unutilized Cenvat credit for works contract service exported out of India. ... Refund of unutilised Cenvat credit - Restriction by ratio of export turnover to total turnover - Condition 5 of Notification No.5/2006-CE(NT) - Rule 5 of the Cenvat Credit Rules, 2004 - Maintenance of separate accounts under Rule 6(2)Restriction by ratio of export turnover to total turnover - Condition 5 of Notification No.5/2006-CE(NT) - Rule 5 of the Cenvat Credit Rules, 2004 - Whether refund of unutilised Cenvat credit is liable to be restricted by the ratio of export turnover to total turnover as prescribed in Condition 5 of Notification No.5/2006-CE(NT). - HELD THAT: - The Tribunal examined Condition 5 of the Notification and noted that while an illustrative provision for maximum refund was deleted by the Finance Act, 2010, the substantive restriction that refund shall be limited to the ratio of export turnover to total turnover for the period remains intact. The appellant rendered both exported output services and exempted services; consequently the statutory condition operates to limit refund entitlement. The Tribunal agreed with the lower authority that the restriction in Condition 5 continues to apply and justifies the limitation on the refund claim under Rule 5 of the Cenvat Credit Rules. [Paras 6]Restriction of refund by the export-to-total turnover ratio under Condition 5 is applicable and justifies limiting the appellant's refund claim.Maintenance of separate accounts under Rule 6(2) - Refund of unutilised Cenvat credit - Whether maintenance of separate accounts for taxable and exempted services under Rule 6(2) precludes application of the turnover-ratio restriction to the refund claim. - HELD THAT: - The Tribunal accepted the finding of the adjudicating authorities that the option to maintain separate accounts under Rule 6(2) does not negate or override the conditions, safeguards and limitations in the Appendix to Notification No.5/2006-CE(NT). The Appendix does not provide that service tax paid on services used for exempted services must be excluded when ascertaining total Cenvat credit for the period; accordingly, maintaining separate accounts does not disentitle the application of Condition 5's ratio for determining refund. [Paras 7]Exercise of the option to maintain separate accounts under Rule 6(2) does not prevent application of the turnover-ratio restriction to the refund claim.Final Conclusion: The Tribunal upheld the Commissioner (Appeals) order; the refund claim was properly restricted in accordance with Condition 5 of Notification No.5/2006-CE(NT) and the appeal is dismissed. Issues:Refund claim of unutilized Cenvat credit for works contract service exported out of India; Interpretation of Notification No.5/2006-CE(NT) dated 14.3.2006; Restriction on refund claim based on the ratio of export turnover to total turnover; Applicability of Rule 5 of Cenvat Credit Rules, 2004; Maintaining separate accounts for taxable and exempted services.Analysis:The appeal pertains to a refund claim filed by the appellant seeking the refund of unutilized Cenvat credit for input services used in providing works contract service exported out of India. The claim was partially allowed by the adjudicating authority, and the appellant challenged the rejection part before the Commissioner (Appeals), who upheld the original order. The main contention was regarding the restriction imposed on the refund claim based on the ratio of export turnover to total turnover as per Condition No. 5 of Notification No.5/2006-CE(NT) dated 14.3.2006.The appellant argued that they are entitled to the refund of the entire unutilized Cenvat credit as they maintained separate accounts for taxable and exempted services, and the credit availed pertained only to the input services used in the export of services. However, the Department justified the restriction imposed on the refund claim, stating that even though the illustration under clause 5 was deleted, the requirement of the export turnover to total turnover ratio still applies as per the notification.Upon consideration of submissions, the Tribunal observed that the restriction on refund claim based on the export turnover to total turnover ratio remains valid despite the deletion of the illustration under clause 5. It was noted that the appellant provided both exported and exempted services, justifying the restriction on the refund claim. The Tribunal agreed with the lower authority's findings that maintaining separate accounts for taxable and exempted services does not exclude the applicability of the conditions set out in the notification.Therefore, the Tribunal upheld the impugned order, dismissing the appeal and finding no grounds to interfere with the decision. The judgment reaffirmed the importance of complying with the conditions and limitations specified in the relevant notifications and rules governing the refund of unutilized Cenvat credit.