2025 (2) TMI 849 - AT - Service Tax

CESTAT allows refund of unutilized Cenvat credit when department fails to invoke Rule 14 challenge

STATE STREET SYNTEL SERVICES P LTD Versus COMMISSIONER (APPEALS), SERVICE TAX-II

CESTAT Mumbai allowed the appeal regarding refund of unutilized accumulated Cenvat credit. The department rejected the refund claim citing ineligible ... Refund of unutilized accumulated credit - rejection of refund claim as ineligible input service in terms of Rule 2(l) of Cenvat Credit Rules, 2004 being ‘no nexus’ with the exported output services without taking any recourse to Rule 14 ibid - HELD THAT:- An identical issue came up for consideration before this Tribunal in the matter of BNP Paribas India Solution Pvt. Ltd. vs. Commissioner of CGST, Mumbai East [2021 (12) TMI 676 - CESTAT MUMBAI] in which this Tribunal while allowing appeal of the appellant therein allowed refund claim under Rule 5 ibid by holding that since provision of Rule 14 ibid has not been invoked refund of cenvat credit, as claimed by the appellant under Rule 5, cannot be denied. In the appellant’s own case State Street Syntel Services Pvt. Ltd. vs. Commissioner of CGST & Service Tax, Navi Mumbai [2023 (12) TMI 569 - CESTAT MUMBAI], while taking note of the decisions of this Tribunal, this Tribunal allowed the appeal of the appellant and held that denial of cenvat credit can be done by issuance of notice under Rule 14 ibid and it cannot be rejected solely under Rule 5 ibid. It is settled principle that there cannot be two different yard sticks i.e. one for allowing the credit and other for deciding the refund and therefore the refund claim cannot be rejected on the ground of admissibility of the input service at the stage of processing of refund claim. Once credit when availed remains unchallenged, the assessee becomes entitled to the refund of the same in terms of Rule 5 ibid r/w Notification No.27/2012-CE (NT) dated 18.06.2012. The eligibility of input services to claim cenvat credit thereon cannot be questioned or examined during sanction of the refund claims, if the same was not challenged when it was availed on such input services. Conclusion - i) Since Rule 14 was not invoked by the department, the refund of Cenvat credit claimed by the appellant under Rule 5 cannot be denied. ii) There cannot be two different yard sticks i.e. one for allowing the credit and other for deciding the refund and therefore the refund claim cannot be rejected on the ground of admissibility of the input service at the stage of processing of refund claim. The impugned order is liable to be set aside - Appeal allowed. The issues presented and considered in the judgment are:1. Whether the authorities were justified in rejecting the refund claim for certain services as ineligible input services without invoking Rule 14 of the Cenvat Credit Rules, 2004 and solely based on the lack of nexus with the exported output services.The detailed analysis of the issue is as follows:- Relevant legal framework and precedents: The key legal framework considered is Rule 5 of the Cenvat Credit Rules, 2004 and Rule 14 of the same rules. Precedents from previous tribunal decisions were also cited to support the interpretation.- Court's interpretation and reasoning: The Court found that the department had rejected the refund claim without invoking Rule 14, which is necessary for denying Cenvat credit. The Court relied on previous tribunal decisions to support the argument that denial of Cenvat credit can only be done by issuing a notice under Rule 14.- Key evidence and findings: The key evidence was the lack of invocation of Rule 14 by the department in rejecting the refund claim. The findings were based on the legal requirement to follow the procedure laid down in the rules.- Application of law to facts: The Court applied the law, specifically Rule 5 and Rule 14 of the Cenvat Credit Rules, to the facts of the case where the refund claim was rejected without following the proper procedure.- Treatment of competing arguments: The Court considered the arguments presented by both the appellant and the revenue, ultimately siding with the appellant based on the legal requirements.- Conclusions: The Court concluded that since Rule 14 was not invoked by the department, the refund of Cenvat credit claimed by the appellant under Rule 5 cannot be denied. The appeals filed by the appellant were allowed with consequential relief.Significant holdings:- The Court held that denial of Cenvat credit can only be done by issuing a notice under Rule 14 of the Cenvat Credit Rules, and it cannot be rejected solely under Rule 5.- The Court established the principle that there cannot be two different yardsticks for allowing credit and deciding the refund, and the refund claim cannot be rejected based on the admissibility of the input service at the stage of processing the refund claim.In summary, the judgment focused on the procedural requirements under the Cenvat Credit Rules, specifically the necessity of invoking Rule 14 for denying Cenvat credit and the inadmissibility of rejecting refund claims solely under Rule 5 without following proper procedure. The Court's decision was based on established legal principles and previous tribunal decisions supporting the appellant's position.