2018 (6) TMI 1011 - AT - Service Tax

Tribunal overturns decisions, orders fresh review. Appellant's refund claims upheld. Errors to be corrected.

The Tribunal allowed the appeals by remanding the case to the adjudicating authority for a fresh order. The appellant's arguments regarding the nexus of ... Definition of input service - nexus between input service and output service - out of pocket expenses as part of taxable service value - periodicity of refund claims under Notification limiting one claim per quarter - requirement of debit in Cenvat account prior to sanction of refund - invoice address not determinative for entitlement to Cenvat credit - arithmetical errors and double rejection of same invoice - computation of refund - application of export turnover proportion on total Cenvat credit (interpretation of 'net Cenvat credit availed') - remand for verification and fresh adjudicationDefinition of input service - nexus between input service and output service - Admissibility of Cenvat credit/refund for various services on ground that 'activities relating to business' was excluded from definition of input service - HELD THAT: - The Tribunal held that exclusion of 'activities relating to business' from the definition does not render all disputed services inadmissible. The principal clause of the definition - that an 'input service' is any service used by a service provider for providing the output service - governs. The appellant, being an output service provider, used the listed services in running its business for provision of output services; therefore those services fall within the definition of 'input service' and refund/credit could not be denied on the sole ground of the deletion of 'activities relating to business'. The Tribunal identified and upheld the characterisation of specific services (event management, convention, sponsorship, works contract used for maintenance, business auxiliary, training, manpower supply, repair, management consultancy and others) as used for providing output service and hence admissible. [Paras 14, 15, 16]Disallowance of refund/credit on the ground of exclusion of 'activities relating to business' is unsustainable; the listed services qualify as input services.Works contract services - exclusion limited to construction/execution of building or civil structures - Whether works contract services availed for maintenance fall within exclusion - HELD THAT: - The Tribunal found that the works contract services in the present cases related to commissioning, installation and maintenance (not construction/execution of building or laying of foundation or support structures for capital goods). The exclusion in the definition applies to works contract services used for construction of building/civil structure; it does not extend to maintenance or repair works. Invoices reflected maintenance nature and therefore the works contract services were not excluded. [Paras 16]Works contract services used for maintenance are not excluded and qualify as input service.Periodicity of refund claims under Notification limiting one claim per quarter - Validity of refund filed for six months (April-September 2012) when notification prescribes not more than one claim per quarter - HELD THAT: - The Tribunal observed that Rule 5 does not prescribe periodicity and the notification restricts multiple claims within a quarter by a provider. The appellant's filing covered two quarters (April-June and July-September 2012) as one claim for each quarter though both were presented together after six months. The restriction is aimed at avoiding multiple claims in a quarter; filing for two quarters together does not violate the condition provided the refund is within the overall time limit (one year from relevant date). The refund was within time and thus cannot be rejected merely because the two quarters' claims were presented together after six months. [Paras 17]Refund filed covering two quarters together (after six months) is not barred provided the overall time limit for filing is observed.Requirement of debit in Cenvat account prior to sanction of refund - Whether non debit of refund amount in Cenvat account at time of filing mandates rejection - HELD THAT: - The Tribunal held that while the Cenvat account must reflect reversal before sanction, immediate debit at the time of filing is not mandatory. The purpose of debiting is to record that the amount is being refunded; if the reversal is shown prior to sanction (and can be evidenced in ST 3 returns or revised Cenvat account), refund should not be withheld. The adjudicating authority could have directed reversal before disbursal; in the present case the appellant had debited the amount subsequently and shown it in returns, so refund could not be denied on this ground. [Paras 18]Non debit at filing is not a ground for rejection if debit is effected before sanction; refund cannot be withheld where reversal is shown prior to sanction.Out of pocket expenses as part of taxable service value - Denial of refund on invoices characterized as out of pocket expenses (OPEs) - HELD THAT: - The Tribunal held that OPEs reimbursed to service providers form part of the gross value of the service and are liable to service tax; there is no principled reason to deny Cenvat credit/refund merely because a component is billed as OPE. Where the underlying service is identifiable and OPEs relate to services rendered, they are in the nature of service charges and eligible for credit/refund. The Tribunal rejected the lower authorities' blanket denial of refund on the ground that invoices were for OPEs. [Paras 19]Cenvat credit/refund cannot be denied solely because invoices relate to out of pocket expenses; such amounts form part of taxable service value.Invoice address not determinative for entitlement to Cenvat credit - Denial of credit/refund because invoices bear an address not registered with Service Tax - HELD THAT: - The Tribunal noted that Rule 9 and Rule 4A prescribe invoice/documentary requirements but do not mandate that the address on the invoice be the assessee's registered premises. So long as the service was received and used by the appellant, credit cannot be denied because the invoice is addressed to a different premises. The Tribunal referred to precedents supporting that credit cannot be denied on this ground. [Paras 20]Invoices addressed to a different (unregistered) premises do not, by themselves, disqualify entitlement to Cenvat credit/refund.Arithmetical errors and double rejection of same invoice - Allegation of double rejection/arithmetical errors in order in original requiring correction - HELD THAT: - The Tribunal observed that certain invoices were repeated in the original order leading to excess rejection (double disallowance) and that such factual/arithmetic errors must be verified and corrected by the adjudicating authority. Instances identified by the appellant (several periods and amounts) were held to be matters of fact and computation which should be rectified on verification. [Paras 21, 22]Admissions of double rejection/arithmetical errors require verification and correction by the adjudicating authority; refunds adjusted accordingly.Computation of refund - application of export turnover proportion on total Cenvat credit (interpretation of 'net Cenvat credit availed') - Whether refund computation should apply export turnover proportion on total Cenvat credit availed or on net credit after domestic utilisation - HELD THAT: - The Tribunal held that the prescribed formula requires application of the export turnover proportion to total Cenvat credit availed during the period; the department erred in deducting credit utilised for domestic liability before applying the percentage. The term 'net Cenvat credit availed' was to be read as total Cenvat credit availed during the period and not after deduction of domestic utilisation. Consequently, rejection arising from application of incorrect formula was unsustainable. [Paras 23]Refund computation must apply export turnover proportion to total Cenvat credit availed; deduction for domestic utilisation prior to applying percentage was incorrect.Supporting documents - verification by adjudicating authority - Rejection for non submission of supporting documents - HELD THAT: - The Tribunal recorded that the appellant had submitted requisite supporting documents along with appeals and directed that the adjudicating authority verify and decide the matter. The Tribunal did not finally decide admissibility on merits but required verification of submitted documents. [Paras 24]Adjudicating authority to verify submitted documents and decide; rejection cannot stand without such verification.Remand for verification and fresh adjudication - Portion of refund (Rs. 2,27,436/- for Oct-Dec 2012) where no reason was given in orders - HELD THAT: - The Tribunal observed that the impugned orders did not give any reason on this amount and therefore that portion requires re examination. More generally, many findings involved factual verification (double rejections, arithmetic corrections, documentary verification and computation in accordance with formula) and the Tribunal remitted the matters to the adjudicating authority for passing a fresh order after considering the Tribunal's observations. [Paras 25, 26]Matter remanded to adjudicating authority for fresh consideration and decision in light of Tribunal's observations.Final Conclusion: Appeals allowed in part by way of remand: the Tribunal held that the disputed services qualify as input services, rejected the lower authorities' contentions on works contract (maintenance), out of pocket expenses, invoice address and debit timing, and found arithmetic and formulaic errors in computation; it directed the adjudicating authority to verify documents, correct double rejections and recompute refunds applying export turnover proportion to total Cenvat credit, and to pass fresh speaking orders on amounts left undecided. Issues Involved:1. Nexus of input service with output service.2. Filing refund claims on a six-monthly basis instead of quarterly.3. Non-debit of refund amount in Cenvat account at the time of filing.4. Refund claims related to out-of-pocket expenses.5. Invoices bearing different addresses not registered with Service Tax department.6. Rejection of refund claims twice for some invoices.7. Arithmetic errors in the Order-in-Original (OIO).8. Incorrect formula applied for computation.9. Non-submission of supporting documents.10. Lack of reasoning for rejection of refund claim amounting to Rs. 2,27,436/-.Issue-wise Detailed Analysis:1. Nexus of Input Service with Output Service:The appellant argued that various input services, such as event management, convention services, sponsorship, works contract, business auxiliary services, training services, manpower supply, repair services, and management consultancy, were used for providing output services and thus should qualify as input services under Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal agreed, stating that despite the exclusion of 'activities related to business' post-April 2011, the main clause still allowed any service used for providing output service to qualify as input service. The lower authorities erred in their narrow interpretation.2. Filing Refund Claims on a Six-Monthly Basis:The Tribunal noted that while Notification No. 27/12-CE(N.T.) dated 18-06-2012 specifies quarterly filing, it does not bar claims filed for two quarters together, provided they are within the one-year time limit from the relevant date. The appellant’s claims for April to June 2012 and July to September 2012 were thus deemed valid.3. Non-Debit of Refund Amount in Cenvat Account:The Tribunal found that the appellant had subsequently debited the refund amount in their Cenvat account and reflected it in their ST-3 returns. The purpose of debit is to indicate that the amount is being refunded, and as long as the debit is made before the sanction of the refund, it should be acceptable.4. Refund Claims Related to Out-of-Pocket Expenses:The Tribunal held that out-of-pocket expenses are part of the gross value of the service provided and are liable to service tax. Therefore, the denial of Cenvat credit and refund on these grounds was incorrect.5. Invoices Bearing Different Addresses:The Tribunal ruled that Cenvat credit cannot be denied merely because the invoices bear an address not registered with the Service Tax department, as long as the services were received and used by the appellant. This position is supported by precedents such as GE India Exports Private Limited and M Portal India Wireless Solutions P. Ltd.6. Rejection of Refund Claims Twice for Some Invoices:The Tribunal observed that some invoices were mistakenly rejected twice, leading to excess rejection amounts. This arithmetic error needs correction after verifying the records.7. Arithmetic Errors in the OIO:Similar to the previous issue, the Tribunal noted arithmetic errors in the rejection amounts, which need verification and correction by the adjudicating authority.8. Incorrect Formula Applied for Computation:The Tribunal found that the department incorrectly applied the formula for computing the refund by considering net Cenvat credit instead of total Cenvat credit. The correct approach is to apply the export turnover percentage to the total Cenvat credit availed during the period.9. Non-Submission of Supporting Documents:The Tribunal directed the adjudicating authority to verify the submitted documents and decide accordingly, as the appellant claimed to have provided the necessary documents.10. Lack of Reasoning for Rejection of Refund Claim Amounting to Rs. 2,27,436/-:The Tribunal noted that the OIO and OIA did not provide any reasoning for rejecting the refund claim of Rs. 2,27,436/- for the period October to December 2012. This portion of the refund needs to be reconsidered and decided afresh.Conclusion:The Tribunal allowed the appeals by way of remand to the adjudicating authority for a fresh order, considering the observations and directions provided. The appeals were thus allowed for re-evaluation and correction of errors.