Tribunal allows refund claim for service tax paid on exported output services

The Tribunal allowed the appellant's refund claim under Rule 5 of Cenvat Credit Rules, 2004 for service tax paid on input services used in exported output services. The Tribunal held that the 2012 substitution of the rule eliminated the need to establish a direct nexus between input and output services for claiming a refund. As per the Tax Research Unit clarification, duties or taxes paid on qualifying inputs are entitled to be refunded based on the export turnover ratio, without requiring a direct correlation. Therefore, the Tribunal set aside the previous decision and allowed the appeal in favor of the appellant.

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Issues:
Refund claim under Rule 5 of Cenvat Credit Rules, 2004 for service tax paid on input services used in output services exported by the appellant.

Analysis:
The appellant, engaged in taxable services, filed a refund application for service tax paid on input services used in exported output services. The original authority allowed a partial refund, rejecting the balance due to lack of nexus between input and output services. On appeal, the Commissioner (Appeals) further reduced the refund amount, citing the same reason. The appellant challenged this decision before the Tribunal.

Upon hearing both sides and reviewing the records, it was noted that Rule 5 of Cenvat Credit Rules, 2004 was substituted in 2012, eliminating the requirement to establish a nexus between input and output services for claiming a refund. The Tax Research Unit clarified that duties or taxes paid on qualifying inputs or input services are entitled to be refunded based on the export turnover to total turnover ratio, without necessitating a direct correlation between input and output services.

In light of the amended rule and the TRU clarification, the Tribunal found no merit in denying the refund to the appellant based on the lack of nexus between input and output services. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant.

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