2025 (10) TMI 918 - AT - Service Tax

Marketing support held export under pre-1.3.2007 export rules; cenvat denial and rebate rejection set aside, remanded for FIRC correlation

CESTAT allowed the appeal by remand, holding that the marketing support services qualified as export of service under the pre-1.3.2007 Export of Service ... Rebate claim filed under N/N. 11/2005-ST dated 19.04.2005 read with Rule 5 of Cenvat Credit Rules, 2004 - rejection on the ground that the services undertaken by the appellant cannot be considered as export of services and the credit taken by the appellant was ineligible credit - scope of SCN - SCN does not allege irregular availment of cenvat credit. Whether the marketing support services undertaken by the appellant fall under the category of ‘Export of Service’ as per the provisions under the Export of Service Rules, 2005? - HELD THAT:- It is not in dispute that Dell India provided the marketing support services to their foreign entities by identifying the prospective customers and in turn, the foreign entities sold their products to the customers in India. The Commissioner (A) in the impugned order observed that since the ultimate consumption of the products happened in India, they cannot be considered as Export of Service. This issue is no longer res integra in as much as the Larger Bench in the case of Arcelor Mittal Stainless (I) Pvt. Ltd. vs. CST Mumbai [2023 (8) TMI 107 - CESTAT MUMBAI-LB] in a similar set of facts observed that 'export of service would take place under rule 3(1)(iii) of the 2005 Export Rules if a person residing in India provides a service to a foreign entity to enable it to book orders for customers in India. This is for the reason that the foreign entity is located outside India and the payment is received by the person residing in India in convertible foreign exchange.' The period of dispute being from April 2007 to March 2009, it is necessary to examine the amendments to the Export of Service Rules, since the above decision is applicable only prior to 01.03.2007. It is found that Notification No. 30/2007 dated 22.05.2007 in sub-rule (2) clause(b) the words “provided outside India” was omitted and the other amendments brought in vide Notification No. 5/2008, 20/2008 and 30/2009 have no implication, hence, during the disputed period, the decision of the Larger Bench holds good. Hence, the demand against this ground cannot be sustained. Scope of SCN - HELD THAT:- As rightly argued by the appellant, the denial of cenvat credit on the ground that the same is ineligible credit under the Cenvat Credit Rules, 2004 cannot be sustained in as much as the observation by the authorities is beyond the scope of the show-cause notice. The grounds based on which the rebate claims have been rejected cannot be sustained. However, since the Commissioner (A) in the impugned order with regard to correlation of export invoices and copies of FIRC has observed that ‘there is no need for correlation as the same is not considered as export even though the payments are made in Foreign Currency’, the issue needs to be remanded for verification of the documents - the matter is remanded only to verify the export invoices against the FIRC’s copies for the relevant rebate claims. Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether marketing, logistical and technical support services provided in India to foreign entities, where the foreign entities sell goods to Indian customers, qualify as 'export of service' under the Export of Service Rules, 2005 for the period April 2007 to March 2009. 2. Whether denial of rebate on the ground that cenvat credit claimed is ineligible can be upheld when the show-cause notice does not allege irregular/unauthorized availment of cenvat credit. 3. Whether trading activity of the service provider (as distinct from provision of services) during the relevant period constituted an exempted service barring utilization of common input services credit. 4. Whether correlation between export invoices and FIRC copies requires adjudication and verification despite findings on exportability of services. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Export of Service (marketing/support services) Legal framework: Export of Service Rules, 2005 (notably Rule 3 and Rule 3(2)(b)) and the condition that services be rendered to a recipient located outside India and consideration received in convertible foreign exchange. Service-tax being a destination-based consumption tax and principles governing 'export of service' prior to and during the disputed period (April 2007-March 2009). Precedent treatment: The Tribunal relied on the Larger Bench decision which held that services provided in India to a foreign entity enabling it to book orders for Indian customers qualify as export of service where the service recipient is located outside India and payment is in convertible foreign exchange. The Larger Bench reasoning, followed here, rejects a test based on place of consumption/customer location. Interpretation and reasoning: The Tribunal applied the Larger Bench ratio that the relevant test under Rule 3 is the location of the service receiver and receipt of convertible foreign exchange, not the place where the end-consumer receives goods. Amendments to Export of Service Rules after 1-3-2007 (specifically omission of 'provided outside India' by Notification dated 22.05.2007 and other later amendments) were examined and found not to disturb the Larger Bench applicability for the disputed period. The Tribunal concluded that marketing/logistical/technical support rendered to foreign entities, where consideration was received in convertible foreign exchange, constituted export of service during the relevant period. Ratio vs. Obiter: Ratio - The Larger Bench holding (adopted by the Tribunal) that services rendered in India to a foreign service recipient for booking orders for Indian customers are exports if payment is in convertible foreign exchange and the recipient is located outside India. Obiter - ancillary discussion distinguishing place of performance from place of service receiver; but the core holding as applied is ratio. Conclusion: The impugned denial of rebate on the ground that ultimate consumption of goods occurred in India is not sustainable for the period in question; the services meet the export of service test under the Rules as applicable then. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Denial based on ineligible cenvat credit not alleged in show-cause notice Legal framework: Principles of adjudicatory fairness and scope of show-cause notices; requirements that adjudication must remain within grounds alleged in notice. Precedent treatment: The Tribunal cited Supreme Court authority establishing that an order cannot travel beyond the scope of the show-cause notice. It also cited decisions holding that, while deciding rebate claims, Revenue cannot raise new disputes on cenvat credit eligibility not framed in the notice at that stage. Interpretation and reasoning: The show-cause notices issued with respect to the rebate claims did not allege irregular or ineligible availment of cenvat credit; they required documentary particulars and correlation but did not put in issue eligibility as a ground of denial. The Tribunal held that the Commissioners' denial of the rebate based on ineligible cenvat credit was beyond the scope of the notice and therefore unsustainable. Ratio vs. Obiter: Ratio - Denial of rebate on ground of ineligible cenvat credit cannot be sustained when that ground was not raised in the show-cause notice. Obiter - references to other adjudications (orders-in-original) affecting similar periods were discussed but the essential binding point remains within the ratio stated. Conclusion: Rejection of rebate claims on the basis of ineligible cenvat credit is beyond the scope of the show-cause notice and cannot be sustained. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Trading activity and entitlement to utilize common input services credit Legal framework: Cenvat Credit Rules, 2004 and the definition/exemption status of 'trading' as a service during the relevant period; amendments to Rule 2(e) and notification dates changing scope of exempted services. Precedent treatment: The Tribunal noted High Court/Tribunal decisions holding that trading was not an exempted service during the relevant period and that entitlement to common input services credit is not barred merely by trading activity prior to the amendment that explicitly included trading as exempted. Interpretation and reasoning: Trading was not an exempted service for the disputed period (pre-01.03.2011 amendment). Therefore, the contention that trading precluded utilization of credit on common input services lacks merit for the period under consideration. The Tribunal referenced decisions supportive of this interpretation. Ratio vs. Obiter: Ratio - Where trading was not an exempted service during the relevant period, trading activity does not preclude availing or utilizing cenvat credit on common input services. Obiter - citation of later amendments does not affect period-specific entitlement. Conclusion: The claim that trading activity barred credit utilization is unsustainable for the disputed period because trading was not an exempted service then. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Correlation of export invoices with FIRC copies and remand for verification Legal framework: Documentary requirements for rebate claims under Notification No. 11/2005-ST and Rule 5 of Cenvat Credit Rules, including correlation of export invoices and foreign inward remittance certificates (FIRCs) and proof of payment in convertible foreign exchange. Precedent treatment: While the Tribunal accepted merits on exportability, it recognized administrative and evidentiary duties to verify the claimed linkage between export invoices and FIRCs and to ensure proper accounting/reporting in ST-3 returns. Interpretation and reasoning: Although the Tribunal found on merit that the services qualified as exports and that denial on cenvat grounds was beyond notice, the Commissioner (A) had also observed absence of need for correlation (because the services were not considered export). Given that exportability is now accepted by the Tribunal, documentary correlation remains a live factual/verificatory issue. The Tribunal therefore remanded the matter to the adjudicating authority to verify export invoices against FIRC copies and related documentary compliance for the periods in dispute. Ratio vs. Obiter: Ratio - Even where exportability is established as a legal proposition, factual verification of documents (export invoices v. FIRCs, ST-3 reporting, payment of service tax/cess) is necessary before granting rebate. Obiter - procedural observations about prior authorities' failure to examine invoices against FIRCs. Conclusion: The matter is remanded for verification of export invoices vis-à-vis FIRC copies and relevant documentary compliance; refund/rebate entitlement is allowed on merit subject to successful verification. OVERALL CONCLUSIONS The Tribunal held that (a) the marketing/logistical/technical support services provided to foreign entities qualified as export of service for the period April 2007-March 2009; (b) rejection of rebate on the basis of ineligible cenvat credit was beyond the scope of the show-cause notices and unsustainable; (c) trading activity did not bar utilization of common input services credit during the relevant period; and (d) notwithstanding these legal conclusions, the claim is remanded for documentary verification of export invoices against FIRCs and related returns before releasing rebate.