2014 (11) TMI 831 - AT - Service Tax

Denial of refund claim - scope of input services - validity of question raised in the show cause notice - reverse charge mechanism - The appellant states that the very show-cause notice is bad and illegal in terms of the directions of the Ministry of Finance issued in its Circular dated 9.8.2005. In view of this Circular, there is no scope for getting into the definition of input service and the Revenue have totally misconceived in issuing the show-cause notice dated 9.11.2006. Thus, the whole proceedings are vitiated and the impugned order is fit to be set aside. Accordingly, the appellant pleads to allow the appeal. Held that - show-cause notice itself is vitiated and completely misconceived in the facts and circumstances of the case. Thus, the appeal is allowed and impugned order is set aside. - refund allowed - Decided in favour of assessee.

Summary

Issues involved:
Claim for refund of Service Tax on reverse charge basis; Interpretation of input service under Cenvat Credit Rules, 2004; Time limitation for filing refund claim; Legality of show-cause notice in light of Ministry of Finance Circular dated 9.8.2005.

Analysis:

Claim for refund of Service Tax on reverse charge basis:
The appellant, a garment manufacturer and exporter, availed services of agents outside India for procuring purchase orders and paid commission to them. The appellant deposited Service Tax on Reverse Charge Mechanism as per Section 65 of the Finance Act, 1994. The appellant claimed refund of Service Tax amounting to &8377; 8,74,799 for the period Sept. 2005 to March, 2006. The appellant relied on a Ministry of Finance clarification and legal precedents to support their claim that no Service Tax was payable on reverse charge basis before the introduction of Section 66A. The Tribunal, after considering the contentions, allowed the appeal and directed the refund with interest.

Interpretation of input service under Cenvat Credit Rules, 2004:
The Revenue issued a show-cause notice questioning the qualification of the service availed by the appellant as an input service under the Cenvat Credit Rules, 2004. The appellant argued that the show-cause notice was illegal in light of the Ministry of Finance Circular dated 9.8.2005, which clarified the options available for utilizing input credit on service tax. The Tribunal found the show-cause notice to be misconceived and vitiated, ultimately setting aside the impugned order and directing the refund to the appellant.

Time limitation for filing refund claim:
The Commissioner (Appeals) upheld the rejection of the refund claim on the grounds that the appellant introduced a new ground based on legal rulings after filing the refund application, making the claim technically filed on a later date, which was considered time-barred. However, the Tribunal found that the show-cause notice itself was flawed, rendering the time limitation argument irrelevant in this context.

Legality of show-cause notice in light of Ministry of Finance Circular dated 9.8.2005:
The appellant contended that the show-cause notice was illegal based on the Ministry of Finance Circular dated 9.8.2005, which clarified the treatment of services rendered outside India for export of goods. The Tribunal agreed with the appellant, stating that the show-cause notice was misconceived in light of the Circular, and therefore, set aside the impugned order and directed the refund to be issued to the appellant within a specified period.