2016 (4) TMI 1481 - HC - Central Excise

Earlier precedent controls; discretionary referral to examine factual nexus upheld, no substantial question of law; refund claim dismissed

The HC held the matter was covered by its earlier decision and that the Tribunal's exercise of discretion to refer the factual nexus for further ... Admissibility of refund claims - HELD THAT:- The present matter is covered by the decision of this Court in case of Commissioner of Service Tax Vs. Narus Networks Pvt. Ltd. [2016 (5) TMI 1245 - KARNATAKA HIGH COURT] where it was held that 'When the Tribunal was satisfied that the matter deserves further examination on facts for finding out the nexus, by exercise of discretion, it cannot be said such exercise of discretion is perverse.' As the fact situation is the same in the present case similar view deserves to be taken. In view of the above, there are no substantial question of law would arise for consideration. Under the circumstances, no case is made out for interference. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal committed error in remanding the matter to the original authority to decide admissibility of refund claims for further factual examination of nexus between input services and output services. 2. Whether the output services in question qualify as 'service' for the purposes of CENVAT credit/refund, particularly in light of the legal position before and after the insertion of clause (zzzze) to Section 65(105) of the Finance Act, 1994 (i.e., whether such services were non-services prior to 16.5.2008 and the impact of that temporal distinction on admissibility of claims). 3. Whether any substantial question of law arises from the Tribunal's remand order that warrants interference by the High Court. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Lawfulness of remand by the Tribunal (discretion to remit for factual enquiry) Legal framework: Administrative and appellate tribunals possess discretionary power to remit matters to the original authority where factual aspects require further examination; remand is appropriate where the Tribunal considers nexus or other material facts were not adequately explored by the adjudicating authority. Precedent Treatment: The Court relied on its prior treatment of similar remands in earlier decisions where remand was sustained when the Tribunal identified factual issues (notably nexus) requiring determination by the original authority. Interpretation and reasoning: The Tribunal remanded the matter to enable the authorities to examine and ascertain the nexus between input services and output services, a factual determination relevant to admissibility of refund. The Court held that when the Tribunal is satisfied that further factual inquiry is necessary, exercise of discretion to remit is not perverse. The Tribunal's action was considered an appropriate exercise of appellate discretion rather than an error of law. Ratio vs. Obiter: Ratio - remand was valid and not perverse where factual nexus requires determination; Obiter - none material beyond that standard. Conclusion: The remand did not justify interference by the Court; the Tribunal's exercise of discretion was upheld. Issue 2 - Characterisation of output services as 'service' for CENVAT credit/refund and temporal effect of clause (zzzze) to Section 65(105) Legal framework: The statutory definition of 'service' for purposes of CENVAT credit/refund is governed by Section 65(105) of the Finance Act, as amended; clause (zzzze) (effective 16.5.2008) identified certain information technology/software related services as taxable services for CENVAT purposes. Precedent Treatment: The Court considered its prior decisions, including the mPortal line of decisions and a prior ruling in a closely analogous matter, which addressed whether certain activities were services for CENVAT purposes before clause (zzzze) was introduced. The Court noted that the Tribunal had not earlier considered the effect of that temporal distinction. Interpretation and reasoning: The Court observed that with effect from 16.5.2008 clause (zzzze) brought within the statutory fold certain IT/software related activities as taxable services; however, it was not permissible to assert that those activities were 'no service' at all prior to that date without considering the factual and legal context. The Court noted that the appellant did not raise such contention before the Tribunal. Given the similarity of fact situation with the previously decided matter, the Court concluded that the Tribunal's remand to ascertain admissibility in light of observed issues was appropriate. Ratio vs. Obiter: Ratio - temporal statutory amendment (clause (zzzze) effective 16.5.2008) is material to the characterisation and requires consideration when admissibility of CENVAT/refund claims is in issue; Obiter - the remark that it is 'not possible to accept the contention that they were no service at all' operates as interpretative guidance but limited by factual context and the parties' contentions before the Tribunal. Conclusion: The question whether the output services qualified as 'service' for CENVAT/refund purposes depends on the statutory position and facts (including temporal applicability of clause (zzzze)); the Tribunal's failure earlier to consider that aspect properly justified remand and did not warrant interference. Issue 3 - Existence of substantial question of law warranting interference Legal framework: Appellate interference by the High Court is warranted only where substantial questions of law arise or where the appellate authority's exercise of discretion is perverse or legally unsustainable. Precedent Treatment: The Court applied its prior reasoning that absence of a substantial question of law and a proper exercise of discretion by the Tribunal are grounds to refuse interference. Interpretation and reasoning: Having found that the Tribunal's remand was an appropriate exercise of its discretion and that factual questions (nexus and characterisation) required further consideration, the Court concluded that no substantial question of law remained for its determination. The appellant's challenge did not demonstrate perversity or legal error meriting intervention. Ratio vs. Obiter: Ratio - no interference where Tribunal properly remanded for factual determination and no substantial question of law is shown; Obiter - none beyond reiteration of standard for interference. Conclusion: No substantial question of law arises; the High Court declined to interfere with the Tribunal's remand and dismissed the appeal. Cross-References See Issue 1 and Issue 2: the legitimacy of remand (Issue 1) is interlinked with the need to examine the temporal statutory classification of services (Issue 2), and together they form the basis for the Court's conclusion on absence of substantial question of law (Issue 3).