TaxTMI 
TaxTMI 
2016 (2) TMI 580
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....71/2013 dated 02.12.2013, No. 05-09/2015 dated 18.02.2015 and No. 01-04/2015 dated 18.02.2015 and the remaining four appeals filed by the Revenue are arising out of one Order-in-Appeal No. No. 39-42/2011 dated 30.08.2011. 2. The brief facts of the case are that the Appellants are rendering software services and the services are exported and also to the domestic clients. The Appellant obtained centralized registration for service tax with the Commissioner of LTU, Chennai and also registered with STPI/SEZ as well. The Appellant claimed refund of CENVAT credit on the credit relating to input services used in the output services exported outside India under Rule 5 of CCR read with Notification No. 05/2006 dated 14 March 2006 as amended. 3. Appeal Nos. ST 278/2010 and ST 295/2011 are filed by the Appellant against the Order in Appeal No. 15/2010 and 06/2011. The original adjudicating authorities as well as the Commissioner (Appeals) in these cases rejected/restricted the refund claims of the Appellant on the grounds that: * Services related to development of information technology software and maintenance of such software were specifically included as taxable service only....
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....45,48,423 97,17,342 1,48,31,081 41 Nov-10 41019/2015 05-09/15 18.02.15 281/12 dt 31.08.12 3,16,82,883 1,05,04,955 2,11,77,928 42 Dec-10 41020/2015 282/12 dt 31.08.12 7,89,88,41680,48,903 7,09,39,513 43 Jan-11 41021/2015 286/12 dt 31.08.12 3,58,78,087 1,18,02,667 2,40,75,420 44 Feb-11 41022/2015 398/12 dt 31.12.12 3,30,37,886 51,58,752 2,78,79,134 45 March 2011 41023/2015 399/12 dt 31.12.12 5,63,35,510 63,05,026 5,00,30,484 The adjudicating authority restricted the refund claim on the following grounds: * The export turnover portion in the formula prescribed under Rule 5 of CCR, does not include the value of exports made from SEZ. * that is, in the numerator the total export turnover the adjudicating authority taken only STPI turnover and excluded the SEZ exports and while taking the total turnover (denominator) the adjudicating authority has computed including SEZ exports and accordingly rejected the refund. * The adjudicating authority also excluded the quantum of amount from the ref....
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....pliance of the Commissioner (Appeals) order No. 39 to 42/2011 dated 30.08.2011 sanctioned the consequential refund vide four OIOs as above (Sl.No. 37 40 in the table). The revenue reviewed the said refund orders and filed appeals before the Commissioner (Appeals). The Lower appellate authority in the impugned order No.1-4/2015 dated 18.02.2015 allowed the revenue appeals and set aside the orders. Aggrieved by the order of the Commissioner (Appeals) in OIA No. 1-4/2015 dated 18.02.2015, the appellants preferred appeals before this Tribunal in ST/41015/15 to 41018/2015. 6. The Ld. Advocate appearing on behalf of the appellants submitted a written synopsis in a tabular form of issues appeal-wise and reiterated the same. In respect of appeal No.s ST/278/10 and ST/295/11, he submits that the Revenue either restricted or rejected on the input service credit on the only ground that the software maintenance service was not taxable under Notification no. 5/06 prior to 16.05.2008. He drew the attention of the Bench to para - 16 of the adjudication order and submitted that the service provided by the appellants are taxable and further submitted that they have paid service tax on mana....
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....stration for service tax purposes and that all their premises were either STPI or SEZ units from where services are predominantly exported with negligible domestic sales. A sample computation methodology which was under dispute on the manner of arriving at the eligible refund was submitted and further stated that there are three parameters for arriving at the quantum of refund which are as follows: * CENVAT Credit * Export turnover * Total Turnover As far as CENVAT Credit is concerned, while the Appellant applied for refund of entire CENVAT Credit taken, the Department had restricted the same to the net eligible CENVAT Credit after deducting ineligible CENVAT Credit for which separate proceedings were initiated. 9. As regards Export turnover & Total turnover, it was submitted that they claimed the benefit of refund on export turnover of both SEZ & STPI units and that no CENVAT Credit was availed on services received by SEZ units since they were ab-initio exempt. However, for the purpose of turnover, the Appellant had adopted turnover of SEZ & STPI units, since Rule 5 of CENVAT Credit Rules is for entity as a whole and not for STPI/SEZ separately. Th....
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....Rs. 342,32,40,637). Even if this alternative formula were adopted, if the refund amount would have been Rs. 1,71,03,028 (i.e. 1,80,76,926 X 323,88,12,961/342,32,40,637) which is substantially higher than the refund granted by the Department. 12. In support of these above arguments, they placed reliance upon catena of decisions in the context of Section 80HHC and Section 10 A of the Income Tax Act, 1961. He specifically drew our attention to ruling of Hon'ble Karnataka High Court in the case of CIT vs. M/s. Tata Elxsi Limited 2011 - TIOL - 684- HC- KAR- IT which in turn placed reliance on various judicial pronouncements and held that there should be uniformity in the ingredients of both numerator and denominator of the formula since otherwise it would produce anomalies or absurd results. Relying on the said precedents, it was submitted that if the department chose to exclude the SEZ turnover from numerator it also ought to have excluded the same from denominator. 13. Reliance was placed on the decision of the CESTAT Mumbai in the case of Commissioner of Central Excise , Pune III vs. M/s. Computer Land UK Limited 2015 (10) TMI 517, wherein it was held that if the Revenue wanted....
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....ubmitted that Supreme Court in the case of CIT vs. Punjab Stainless Steel relied upon by the Department was in fact favorable to them. They relied upon the operative part of the Supreme Court ruling which held that the turnover of scrap (similar to SEZ turnover in the present instance) was liable to be deducted from the total turnover. They also relied upon Para 28 of the said Supreme Court order to submit that the benefit granted under Rule 5 of CENVAT Credit Rules is only to incentivize and encourage exports and therefore any interpretation leading to a reduction in the value of export should not be resorted. 16. He submitted that Rule 5 being a beneficial provision with an objective to grant refund of unutilized CENVAT Credit, the refund ought to have been granted in accordance with the claim made by the Appellant rather than restricting the same in a manner which is not the intention of the legislature. Further, it was also submitted that the Appellant did not avail of any CENVAT Credit pertaining to the SEZ operations and that is what is more critical since the refund that is granted is of CENVAT Credit and not that of turnover. 17. As regards, other precedents relied up....
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.... has been clearly mentioned that the appellant has paid the service tax both by cash as well as by debit in their CENVAT credit of a total amount of Rs. 86,72,780/- paid by cash and Rs. 12,16,456/- paid through their CENVAT account and also they have paid education cess and higher education cess of Rs. 1,73,457/- in cash and Rs. 24,329/- through CENVAT and Rs. 5,351/- in cash and Rs. 12,120/- through CENVAT account respectively and the appellant has claimed refund of service tax paid on input service which was used in output service. From the above, it is very clear that the Revenue cannot adopt two standards, when the appellant paid service tax under MMRS the same was accepted by the Revenue. Whereas, while claiming the refund under Rule 5 of CCR, the department choose to argue differently, stating that the said services are exempted. The issue of granting refund of unutilized input credit/input service tax credit used in the export of services under Rule 5 of CCR has been settled by various Honble High Courts and Tribunal. The decision of the Tribunal at Mumbai Bench in the case of KPIT Cummins Infosystems Ltd. Vs. CCE, Pune-I - 2013 -TIOL-931-CESTAT-MUM has dealt the identical ....
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....port, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilised by the manufacturer or provider of output service towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty or service tax on output service, and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification." 5.4 Accordingly, Notification NO. 5/2006-CE (.N.T.) dated 14/03/2006 has been issued. Rule 6 of CENVAT Credit Rules, 2004 deals with obligation of the manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Under Rule 6(3)(c), the provider of output service shall utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. In the present case, the services provided by the appellant and exported is not a taxable output service inasmuch as software develo....
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....ment of India is to promote exports of goods and services and not export of taxes. Service tax being a destination based consumption tax, in the case of exports there should not be any tax burden and the tax burden, if any, is to be imposed by the Government of the country where the services are consumed. Otherwise, it would render the exports of software uncompetitive. Keeping in view of above policy objective of the government, it is appropriate to hold that the appellants are eligible for the refund of the amount claimed by them of Rs. 2,14,45,060/- during the impugned period on account of export of exempted services subject to the satisfaction of other conditions prescribed in Notification No. 5/2006-CE(NT) dated 14/03/2006 and the Revenue shall verify the same." The ratio of the above Tribunal decision is squarely applicable to the present case as the Tribunal in the above case has held that the software maintenance service is classifiable under the category of Management and Maintenance or Repair Service (MMRS) during the relevant period and in the present case it is clearly established that the appellants have paid the service tax on MMRS and availed credit. The above dec....
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.... 2. "Total turnover" means the sum total of the value of, - (a) all output services and exempted services provided, including value of services exported; (b) all excisable and non excisable goods cleared, including the value of goods exported; (c) The value of bought out goods sold, during the given period." 22. We find in the present case, while calculating the quantum of refund eligible as per the formula prescribed under Rule 5 of CCR, the appellant claimed the refund on the export turnover of both SEZ and STPI units. For the purpose of total turnover, the appellants have computed total turnover of both SEZ and STPI units as the appellants being one entity. Whereas, it is seen the adjudicating authority while computing the value has deducted the value of SEZ exports from the export turn over (numerator) but retained the SEZ export turn over in the total turnover (Denominator). The appellants contended that the adjudicating authority when deducting the value of SEZ exports from the turnover, ought to have deducted the same from the total turnover. Vis-`-vis, or if he has included it in the turn over, he should have also included it in the exp....
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.... provisions of Export of Services Rules, 2005, whether the payment is received or not;" From this definition it is clear that for the purposes of new Rule 5 of the CCR, receipt of payment is immaterial and only the actual export of service by way of its provision & issuance of invoice remain the relevant criteria. As per the first proviso to Rule 5(2) of the CCR, refund in respect of services exported could be made under the old Rule 5 of the CCR within a period of one year, i.e. upto 31.03.2013. In other words, for the exports made upto 31.03.2012, refund was admissible under the old rule 5 of the CCR and for the exports made on or after 01.04.2012, refund is admissible under the new Rule 5 of the CCR. Accordingly, for all exports completed upto 31.03.2012 by way of their provision & issuance of invoice, the new Rule 5 of the CCR is not applicable. 16. Applying the provisions described in Para 15 above on the present case, I find that the Appellant have included the Invoice No. Mar'12-01 and Invoice No. Mar 12-02, both dated 30-03-2012, in the present refund claim on the ground that payments in respect of the same were received on 11-04-2012. However, the exp....
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.... of Section 10-A, in the case of Commissioner of Income Tax Vs. Gem Plus Jewellery India Ltd - 2011 -330-ITR-P-175 (Bom.). Interpreting sub-section (4) of Section 10-A, it is held as under: "Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or as the case may be, computer software exported, to the total turnover of the business carried over by the under taking is applied to the profits of the business of the undertaking in computing the profits of the business of the undertaking in computing the profits derived from export" The formula for computation of the deduction under Section 10-A would be as under:- Profits of the business x export turnover/ Total turnover From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assesse, having export business and domestic ....
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.... stated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore the formula for computation of the deduction under Section 10-A, would be as under: Export turn over Profits of the business of the understating x (Export turn over + domestic turn over) Total Turnover 25. The above Tribunal decision and the Honble High Court decision are squarely applicable to the facts of the present case in so far as the computation of the export turnover and total turnover for computing the export value as per the formula prescribed under Clause 5 of Notification No. 5/2006 dated 14.03.2006. As in the present case, the lower authorities while computing the turn over deducted the value of SEZ exports from the export turn over (numerator) and retained the same in the total turnover (denominator) which has resulted in the anomaly and the reduction in the quantum of refund. The Clause 5 of the Notification No. 5/06 dat....