TaxTMI 
TaxTMI 
2016 (9) TMI 142
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....l authority rejected the claims on the ground that no unutilized CENVAT credit could have existed as the credit column in the ST-3 returns pertaining to the period of refund claim was blank and on the ground that the services rendered were in relation to 'consulting engineer service' which, however, not being chargeable to tax owing to exclusion of the 'discipline of computer hardware engineering or computer software engineering' in section 65(105)(g) with separate accounts not having been maintained in consequence. The first appellate authority concurred with the lower authority on re-classification and, therefore, held that there was no scope for accumulation of credit. In doing so, the impugned order has posited that declaration of classification may be re-opened for scrutiny at any time and the assessee is not entitled to presumption of acceptance of declared classification as sufficient evidence of exigibility to tax. 2. The appellant is a unit registered under the Software Technology Park scheme in the Foreign Trade Policy. There is no dispute that, consequently, the appellant is, primarily, an exporter of services. The quantum of exports during the relevant period as well a....
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....es that have been rendered in the domestic territory. As has been pointed out in the show cause notice and order-in-original, the ST-3 returns do not declare the quantum of CENVAT credit; that does not, however, detract from the eligibility for refund for two especial reasons: first, the provisions of rule 5 of CENVAT Credit Rules, 2004 do not insist on such a pre-requisite and, second, that non-declaration does not, in any way, have an impact on the availment of credit which arises by reason of having borne the burden of tax and the recording of such credit. 5. Fundamental questions need answering and the particular arguments for and against the refund claim made before us shall be dealt with while arriving at our conclusions on the scope and extent of scrutiny warranted in disposing off claim preferred under rule 5 of CENVAT Credit Rules, 2004 and the appropriateness and correctness of the exercise in classification undertaken by the two lower authorities. Before we get down to examining the rival contentions in this dispute, it would not be out of place to revisit the scheme of CENVAT credit, as it affects exporters, to comprehend the perspective, as it were, that we cons....
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....h contracted work is the result of negotiations. 8. By and large, the 'information technology' industry services overseas entities and are a major contributor to exports. As these are intangibles, the evolved systems in the other two taxing statutes do not apply. Finance Act, 1994 is a taxing statute that enables levy of tax on services enumerated in section 65(105) and empowers the Central Government to exempt any taxable service with or without conditions. In accordance with the fundamental principle of taxation, tax levy is restricted to activities within the borders and the Export of Service Rules, 2005 has been notified in exercise of, inter alia, the exemption powers under section 93 of Finance Act, 1994 to limit taxability to the borders explicitly by rule 3 therein. Owing to the peculiarity of intangibles, a segregation to determine the 'export' aspect is necessary and the said Rules elaborate accordingly. 9. In taxing of intangibles, the impossibility of capturing the taxable event renders the tax borne on services utilized by a provider of services as an amorphous mass of unidentifiable provenance. This pool, so accumulated under the CENVAT Credit Rules, 2004, is ....
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....f Service Rules, 2005 deal with exemption of tax on output service and rebate of tax paid on output service as well as on inputs used in providing output service respectively. These are the only two provisions in existence for tax neutralization in export of services. The fundamental concept of not exporting taxes will have, therefore, to be addressed by one or the other of these Rules. 12. Export of Service Rules, 2005 has been issued in pursuance of Rule 93 and 94 of Finance Act, 1994. The former empowers the Central Government to exempt such services, as it thinks fit, from levy of tax while the latter confers the power to make rules on the Central Government and, without prejudice to the generality of powers to do so, exemption from taxes in relation to exports is among the specifically enumerated. It is, therefore, understandable that these Rules, being exemptions from levy accorded to export of services, would restrict itself to taxable services. However, considering the critical importance that exports have in policy formulation of the Central Government, there can be no doubt that some provision should exist or has been intended as the framework for refund of taxes that ex....
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....is accorded to CENVAT Credit by the CENVAT Credit Rules, 2004. Needless to say, it has been so prescribed in the limited context of the scheme. Failure to perceive this context, and its versatility, limits the vitality of this tool, causes distortion in tax administration and relegates legislative intent to the bin of broken promises. 14. It is acknowledged that the appellant is registered under Service Tax Rules, 1994 as provider of services and it is amply clear from the statutory records that the appellant has been discharging tax liability too. Eligibility to take CENVAT Credit in accordance with rule 3(1) cannot, therefore, be denied. There is no evidence on record to show that 'input services' to the extent recorded has not been received or that such 'input service' is not relatable to the services for which registration has been obtained. The original authority has noted the deficiency of details of input credit in the returns; while that may be mandated in rule 9 of the CENVAT Credit Rules, 2004, disallowance or erasure of credit that has been earned is not the consequence of breach; there are specific penal provisions that may be attracted for such breach. There is, indub....
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....t has not been substantiated by any evidence. We are satisfied that the monitoring mechanism of the scheme is robust and diligent enough to prevent any attempt at exaggeration of the claims of magnitude of exports vis-Rs. -vis domestic supply. Considering the proportion of exports, inability to utilize the accumulated credit is clearly acceptable. 17. A juxtaposition of the above narration with the provisions of Rule 5 of CENVAT Credit Rules, 2004 demonstrates that the refund sanctioning authority is required to confine itself to the stipulations in that Rule while dealing with an application for refund of accumulated CENVAT credit. Unutilized CENVAT credit relating to input services availed for rendering services that are exported represents tax that should not have been collected; however, for the convenience of administering tax, exemption through refund is an accepted practice. To discover new and diverse means of frustrating that intent, particularly in the face of judicial interpretation to the contrary, is a travesty of obligations under the taxing statute. It would appear that both the lower authorities did indulge in the misadventure of re-examining the entire gamut of tr....
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....t this provision for refund of accumulated credit is self-contained and is not subject to any other rule or provision of the Rules. The criteria for refund are existence of accumulated credit, insufficient opportunity for utilization thereof and limiting the extent of refund to the proportion that export turnover bears to total turnover. 21. Learned Special Counsel for respondent places particular reliance on the decisions of the Tribunal in Phoenix IT Solutions Ltd v. Commissioner of Central Excise, Vishakapatnam [2011 (22) STR 400 (Tri-Bang)] and Kasturi & Sons v. Union of India [2011 (22)STR 129 (Mad)] to support the contention that 'maintenance' was chargeable to tax only from 1st June 2007. In our opinion, these two decisions, relating as they do to taxability of a service, do not serve to sustain the impugned order which disposes off an appeal against rejection of claim for refund of accumulated credit. The only issue of consequence in this dispute is the compliance with, and implementation of, rule 5 of CENVAT Credit Rules, 2004. 22. A series of decisions of the Tribunal have held that rule 5 of CENVAT Credit Rules, 2004 is the mechanism for refund of any tax on inputs/inp....
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....d by the Government of the country where the taxes are consumed. Otherwise, it render software uncompetitive. Keeping in view of the above policy objective of the government, it is appropriate to hold that the appellants are eligible for the refund...' This consistent position is reiterated in JP Morgan Services India Pvt Ltd v Commissioner of Service Tax Mumbai [2016-TIOL-378-CESTAT-MUM]. 23. The statutory provision in rule 5 of CENVAT Credit Rules, 2004, as clarified supra, and the judicial findings enumerated above would make it amply apparent that the lower authorities have exceeded the scope of rule 5 to deny the refund claim of an exporting unit. 24. Before parting with this matter, we must also address the second issue for determination, viz., the scope for re-classification. Tax on services is levied at a uniform rate and the sole issue in classification is taxability or otherwise. The onus for determining taxability is squarely placed on the shoulders of the service-provider, who, better than anyone else, knows the nature of activity undertaken. We note that, in their attempt to stretch the CENVAT Credit Rules, 2004 beyond the rule affording the option of refund, the tw....