2026 (3) TMI 914 - AT - Service Tax

Eligible Input Service: indirect support services qualify for CENVAT credit; export classification follows distinct establishments.

The note addresses two issues. First, services like common area maintenance, vending machine operation, photography and travel agent services qualify as ... Eligibility of input services under Rule 2(l) of the CENVAT Credit Rules, 2004 - common area maintenance service, vending machine operation service, photography service and travel agent services - definition of input service under Rule 2(l) - denied to be a distinct person than the service recipient Forrester Research Inc (USA) - establishments of distinct persons - refund claim of CENVAT credit in terms of notification number 27/2012. Common area maintenance, vending machine operation, photography and travel agent services - eligible input services for CENVAT credit and refund. - HELD THAT:- The Court held that Rule 2(l) of the CENVAT Credit Rules includes services which are used directly or indirectly in relation to an output service and contains an inclusive list without requiring a one to one correlation. The absence of maintenance, vending or travel related services would adversely affect the quality or efficiency of the appellant's provision of output services and therefore these services have sufficient indirect nexus to be treated as eligible input services. Consequently the CENVAT credit and refund wrongly denied in respect of those services must be allowed. [Paras 11, 12, 13] The specified services are eligible input services and the denial of CENVAT credit and refund in respect thereof is set aside. Establishments in taxable and non taxable territories treated as distinct persons for export of service - HELD THAT:- Applying Explanation 3(b) to clause 44 of section 65(B) and rule 6A(1)(f) of the Service Tax Rules, the Court found that an establishment in the taxable territory and a separate company in a non taxable territory qualify as establishments of distinct persons. The existence of common group ownership or a common director did not negate separate corporate existence or the power vested in respective Boards. Prior departmental acceptance of similar refunds for earlier periods was noted. On that basis the transaction qualifies as export of service and CENVAT credit under reverse charge is available to the appellant. Hon’ble High Court of Gujarat in the Linde Engineers Private Limited vs Union of India [2020 (8) TMI 181 - GUJARAT HIGH COURT] has held that the petitioners and holding companies located outside India/non-taxable territories are to be treated as distinct person and the transaction between them shall be qualified to be called as Export of Service in terms of rule 6(A)(f) and explanation 3(b) to section 65(v)(44) of Finance Act. in the present case the appellant/service provider is in India, whereas FRLON, the service recipient is located in non-taxable territory, irrespective both being the holding companies, the service provider is in compliance of Rule 6A(f) of the Service Tax Rules, 1994. The transaction between the two, therefore, amounts to Export of Service. In light of the above discussion, the issue number 2 also stands decided in favour of the appellant and against the department. The appellant and FRLON are distinct persons and the service transaction qualifies as export of service; the denial of associated CENVAT credit is set aside. Final Conclusion: Both framed issues are decided in favour of the appellant: the impugned denial of CENVAT credit and refund in respect of the specified input services and the denial of export of service treatment between the appellant and FRLON are set aside and the appeals are allowed. Issues: (i) Whether common area maintenance service, vending machine operation service, photography service and travel agent services qualify as eligible input services under Rule 2(l) of the CENVAT Credit Rules, 2004; (ii) Whether the service provider in India and the foreign recipient constitute establishments of distinct persons so as to qualify the transaction as export of service under Rule 6A(1)(f) of the Service Tax Rules, 1994 and Explanation 3(b) to clause (44) of section 65(B) of the Finance Act, 1994.Issue (i): Whether common area maintenance service, vending machine operation service, photography service and travel agent services qualify as eligible input services under Rule 2(l) of the CENVAT Credit Rules, 2004.Analysis: The definition of input service under Rule 2(l) includes services used directly or indirectly in relation to the provision of output services and contains an inclusion clause listing specific examples without requiring a one-to-one correspondence. Services that, if absent, would adversely affect the quality or efficiency of the exported output service fall within the scope of eligible input services. The services in question relate to upkeep and employee facilitation which indirectly support provision of the appellant's output services and are not excluded by the exclusion clause.Conclusion: The specified services qualify as eligible input services under Rule 2(l) of the CENVAT Credit Rules, 2004; the denial of CENVAT credit and refund for these services is set aside in favour of the assessee.Issue (ii): Whether the service provider in India and the foreign recipient constitute establishments of distinct persons so as to qualify the transaction as export of service under Rule 6A(1)(f) of the Service Tax Rules, 1994 and Explanation 3(b) to clause (44) of section 65(B) of the Finance Act, 1994.Analysis: Explanation 3(b) treats an establishment in the taxable territory and an establishment of any other person in a non-taxable territory as establishments of distinct persons. Where the service provider and the foreign recipient are separate legal entities incorporated under different laws, and corporate governance and major policy decisions vest with their respective boards, they qualify as distinct establishments. Prior acceptance of similar refunds for an earlier period by the department corroborates compliance with Rule 6A(1)(f).Conclusion: The Indian service provider and the foreign recipient are establishments of distinct persons for the purposes of Rule 6A(1)(f); the transaction qualifies as export of service and associated CENVAT credit claim is allowed in favour of the assessee.Final Conclusion: Both adjudicated issues are answered in favour of the assessee, resulting in setting aside of the impugned orders and entitlement to the claimed refund and CENVAT credit in respect of the services and export classification addressed.Ratio Decidendi: Services that are used directly or indirectly in relation to the provision of output services qualify as eligible input services under Rule 2(l) of the CENVAT Credit Rules, 2004 where their absence would adversely affect the quality or efficiency of the output service; and separate legal entities incorporated in taxable and non-taxable territories constitute establishments of distinct persons under Explanation 3(b) to clause (44) of section 65(B) of the Finance Act, 1994, enabling classification of the transaction as export of service under Rule 6A(1)(f) of the Service Tax Rules, 1994.