2021 (11) TMI 72 - HC - Service Tax

High Court upholds Tribunal decision on service tax refund appeal, emphasizes Rule 5 formula for refunds

The Commissioner, Customs and Central Excise, Hyderabad-IV Versus M/s. Qualcomm India Pvt. Ltd.

The High Court of Telangana upheld the Tribunal's decision in appeals regarding service tax refund, dismissing the revenue's appeals. The case involved ... Refund of unutilized CENVAT credit - export of taxable output service - nexus between the input services and the output service exported or not - HELD THAT:- As the availment of CENVAT credit by the appellant under Rule 3 of the Rules is not called in question, the denial to grant refund under Rule 5 of the Rules without there being any proceedings initiated under Rule 14 of the Rules by seeking to deny the refund on the ground of the respondent/assessee availed CENVAT credit on input services, which according to the appellant/revenue have no nexus with the output service, cannot be held to be justified. Further, it is to be noted that these appeals relate to period prior to amendment made to Rule 5 of Rules w.e.f 01.04.2012 and also thereafter. In so far the claim for refund of CENVAT credit for the period prior to 01.04.2012 is concerned, as Rule at the relevant point of time did not contain any prescription as to the nexus between input services and output service, the denial of refund on the said ground cannot be held to be valid. For the period subsequent to the introduction of substituted Rule 5 of Rules, the only prescription for grant of refund in respect of export of output service is by applying the formula specified. This Court is of the view that in the given facts and circumstances, the reasons assigned by the Tribunal for holding that the respondent/assessee is entitled for grant of refund of unutilized CENVAT credit under Rule 5 of the Finance Act, does not call for any interference. This Court is of the opinion that no substantial question of law arises for consideration in these appeals - the appeals of the revenue are dismissed. Issues involved:Appeals against common order of Tribunal on service tax refund; Denial of refund on nexus between input and output services; Interpretation of Rule 5 of CENVAT Credit Rules, 2004.Analysis:The High Court of Telangana heard appeals against a common order of the Tribunal regarding service tax refund. The appeals involved the revenue questioning the order that allowed the respondent/assessee's appeal and dismissed the revenue's appeal. The respondent was engaged in providing software services and had exported services to group companies abroad. The issue revolved around the refund of service tax paid on input services for exported output services. The respondent claimed refund under Rule 5 of the CENVAT Credit Rules, which allows for refund of unutilized credit for exported taxable output services. The jurisdictional authority partly allowed the refund, citing a lack of nexus between input and output services.The first appellate authority set aside the order rejecting the refund claim and remanded it for reconsideration. The revenue's appeal was dismissed. Both parties appealed to the Tribunal, challenging the decisions. The issue centered on the refund of accumulated CENVAT credit under Rule 5 of the Rules. The rule allows for refund to service providers exporting services without paying tax, subject to compliance with prescribed procedures. The denial of refund was based on the alleged lack of nexus between input and output services.The High Court noted that Rule 14 allows for recovery of irregularly availed credit but was not invoked in this case. The denial of refund without invoking Rule 14 was deemed unjustified. The Court also considered the period before and after the rule amendment in 2012. For the pre-amendment period, where no nexus requirement existed, the denial of refund based on nexus was deemed invalid. The Tribunal's findings emphasized the need for adherence to the formula under Rule 5 for granting refunds.The Court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration. Consequently, the revenue's appeals were dismissed, and any pending petitions were closed.