Exporters of IT/ITeS entitled to service tax rebate; services qualify as input under Rule 2(l) Cenvat Credit Rules

CESTAT, BANGALORE allowed the appeals, holding that the appellants exported taxable IT/ITeS under Business Auxiliary Service and were entitled to rebate of service tax paid on input services. The Tribunal found the services used in providing exported output qualified as "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, and that the appellants satisfied the five conditions of Notification No.12/2005. The impugned orders were held without merit; appellants granted rebate for all claims in the relevant period with consequential relief.

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Issues: Whether the appellant (a 100% EOU) is entitled to rebate/refund under Notification No. 12/2005-ST and the Export of Services Rules, 2005 of service tax paid on input services used in providing exported services; and whether the services exported by the appellant qualify as taxable Business Auxiliary Services (and not excluded as IT services).

Analysis: The Tribunal examined (i) the definition of taxable service under section 65(105) of the Finance Act, 1994 and the Board clarifications distinguishing Business Auxiliary Services from IT services; (ii) the conditions in Notification No. 12/2005-ST for claiming rebate under the Export of Services Rules, 2005; and (iii) the wide and inclusive definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, which uses phrases such as "whether directly or indirectly, in or in relation to" and "activities relating to business" requiring a liberal interpretation. The Tribunal noted prior findings in the appellant's related matters that the services exported were taxable and that the claimed input services were used in providing the exported services. The Tribunal found that the appellant satisfied the procedural and substantive conditions of Notification No. 12/2005-ST and that the contested services (call centre, back-office processing, IT support for remote maintenance/troubleshooting) fall within Business Auxiliary Service as clarified by the Board and relevant precedents. The Tribunal also held that procedural infractions should not defeat substantive entitlement where conditions are met, and applied the principle that an issue settled between the parties in earlier proceedings attains finality.

Conclusion: The Tribunal concluded that the appellant is entitled to rebate of service tax paid on input services under Notification No. 12/2005-ST and the Export of Services Rules, 2005, and that the exported services qualify as taxable Business Auxiliary Services. This conclusion is in favour of the assessee.

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