Software company wins CENVAT credit dispute on exempted services to foreign branch office under Rule 6(3)(i)

The CESTAT Chennai set aside the demand against the appellant software company regarding CENVAT credit liability on exempted services. The company provided onsite software development services to its foreign branch office and availed CENVAT credit on common input services without maintaining separate accounts. The Revenue demanded payment of 6% of exempted services value under Rule 6(3)(i) of CENVAT Credit Rules, 2004. Following the Tribunal's earlier decision in the appellant's own case, the CESTAT held that no taxable service was rendered in USA under Finance Act 1994, making all charges unsustainable. The appeal was allowed and impugned order set aside.

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Issues:
The issues involved in the judgment are the liability of the appellant to reverse CENVAT credit for allegedly providing exempted services to their overseas branch office and the subsequent demand, interest, and penalties imposed by the authorities.

Issue 1: Liability to Reverse CENVAT Credit
The appellant, a provider of Information Technology Software Services and Business Support Services with a Branch Office in the United States, availed CENVAT Credit of Service Tax paid on various input services. The authorities alleged that the services provided by the appellant to their U.S. Branch were exempted services under the Cenvat Credit Rules, 2004. The appellant was issued a show cause notice demanding a substantial amount under Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The demand was confirmed by the original authority, along with interest and penalties, for the period from July 2012 to March 2015. Subsequently, a similar contravention was noted for the period April 2015 to March 2017, leading to further demands and penalties.

Issue 2: Appeal and Tribunal's Decision
The appellant contended that no services were provided to the overseas branch, challenging the basis of the demand. The Tribunal analyzed the facts, including the Income Tax returns and related documents, to determine the nature of the transactions between the appellant and its U.S. Branch. The Tribunal found that the services in question were actually rendered by the U.S. Branch to its customers and not by the appellant, as alleged. Referring to a previous case involving the same appellant, the Tribunal concluded that the demand could not be sustained. The Tribunal highlighted discrepancies in the impugned order's findings and ruled in favor of the appellant, setting aside the demand, interest, and penalties imposed by the authorities.

Conclusion:
After considering the evidence and following the decision in the appellant's previous case, the Tribunal found that the demand, interest, and penalties imposed on the appellant could not be sustained. Therefore, the impugned order was set aside, and the appeal was allowed with consequential reliefs, if any.

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