2022 (5) TMI 1396 - AT - Service Tax

Tribunal Decision: Exclusion of Onsite Services, CENVAT Credit Disallowance Upheld, Interest Issue Remanded

Commissioner of Cen. Ex. & ST, Pune-III Versus M/s. Tech Mahindra Ltd. (VICE-VERSA)

Commissioner of Cen. Ex. & ST, Pune-III Versus M/s. Tech Mahindra Ltd. (VICE-VERSA) - TMI Issues Involved:1. Whether the onsite services provided by the subsidiary or branch of the appellant located outside India can be treated as 'Export of Services' and turnover thereof can be included in the Export Turnover of the appellant under Rule 5 of the CENVAT Credit Rules (CCR).2. Whether CENVAT credit has been correctly disallowed by the respondent in respect of various input services procured domestically.3. Imposition of interest on erroneous refund granted to the appellant.Detailed Analysis:1. Onsite Services as Export of Services:The primary issue was whether the onsite services provided by the appellant's subsidiaries or branches located outside India can be considered as 'Export of Services' under Rule 5 of the CENVAT Credit Rules, 2004. The appellant argued that these services should be included in their export turnover since they entered into contracts with overseas clients and received payment in convertible foreign exchange. The Commissioner (Appeals) found that the appellant had fulfilled all six conditions of Rule 6A of the Service Tax Rules, 1994, including the receipt of payment in convertible foreign exchange and the location of the service provider within the taxable territory. The Tribunal upheld this view for Model-I, where the appellant directly contracted with overseas clients and received payments, treating the onsite services as part of the export turnover.However, for Model-II, where the subsidiary directly contracted with the overseas client and provided onsite services, the Tribunal found that these services could not be considered as exported by the appellant. The subsidiary was deemed the main contractor and the appellant a sub-contractor, receiving payment from the subsidiary rather than the overseas client. Therefore, the value of these onsite services was excluded from the export turnover and total turnover of the appellant.2. Disallowance of CENVAT Credit:The Tribunal also addressed the issue of disallowance of CENVAT credit for various input services such as those used for personal use of employees, rent-a-cab, telecommunication services, general insurance, outdoor catering, accommodation, restaurant, laundry, guest house, and event management services. The original authority had disallowed these credits, considering them unrelated to the services exported. The Tribunal upheld the original authority's decision, agreeing that these services did not have a direct nexus with the export activity and thus were not eligible for CENVAT credit.3. Imposition of Interest on Erroneous Refund:The appellant challenged the imposition of interest on the erroneous refund granted to them under Section 11AA. The Tribunal noted that the erroneous refund arose due to earlier decisions by the CESTAT and the Bombay High Court for the period before the 2010 amendments. The Tribunal found that the adjudicating authority had not considered whether the amount, if not refunded, would have been available in the CENVAT Credit account for use in domestic service tax payments. Therefore, the Tribunal remanded this issue back to the original authority for reconsideration, directing a fresh decision within three months.Conclusion:The Tribunal dismissed the appeals filed by the revenue, upholding the inclusion of onsite services in the export turnover for Model-I but excluding them for Model-II. The disallowance of CENVAT credit for specific input services was upheld. The matter of interest on the erroneous refund was remanded back to the original authority for reconsideration.