2015 (8) TMI 109 - AT - Service Tax

Denial of CENVAT Credit - input services - professional / legal services - the services relating to this amount were provided at the premises of M/s. HCL Comnet Systems and Service, USA, which is not registered premises in India - Held that - permanent establishment in US is not a legal entity and is merely an office of the appellants. The onus to fulfil the legal requirement relating to that office clearly rests on the appellants and it was in the discharge of that onus that they engaged M/s. Ernst & Young Pvt. Ltd. engaged on the service. The definition of input service given in Rule 2(l) of Cenvat Credit Rules, 2004 clearly covers that any service used by a provider of taxable service for providing an output service and specifically includes the legal services . It is evident that the service rendered by M/s. Ernst & Young Pvt. Ltd. engaged by the appellants were to fulfil the legal requirements relating to the appellants office in the US. Thus the impugned service tax amount is clearly in respect of input service availed by them. - Decided in favour of assessee.

Summary

Issues:
1. Admissibility of CENVAT credit and refund claim under Rule 5 of the CENVAT Credit Rules, 2004.
2. Interpretation of "input service" in the context of services provided abroad.
3. Application of Double Taxation Avoidance Treaty (DTAT) in determining admissibility of CENVAT credit.
4. Legal requirements for permanent establishment in the US and its impact on CENVAT credit eligibility.

Analysis:
1. The appeal was filed against the rejection of a refund claim under Rule 5 of the CENVAT Credit Rules, 2004, amounting to Rs. 2,35,981, due to services provided at a non-registered premises in the USA. The appellate authority upheld the rejection based on the argument that the service was not consumed/utilized by the appellant in their registered premises in India or in relation to the provision of output service, as it was utilized for tax compliance in the USA for the appellant's permanent establishment there. The appellant's contention that they are exporters of services under Business Support Service (BSS) and that the services provided abroad were input services eligible for CENVAT credit was considered.

2. The key issue revolved around the interpretation of "input service" in the context of services provided abroad. The tribunal analyzed the invoices raised on the appellants by the service provider in India for services related to the US establishment. It was established that the permanent establishment in the US was not a separate legal entity but an office of the appellants, and the legal requirements for that office were fulfilled by engaging the services of the Indian service provider. The definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 was crucial in determining the admissibility of the credit, which specifically includes legal services. The tribunal referred to a previous judgment by the Allahabad High Court to support the admissibility of consultancy and legal services as input services.

3. The application of the Double Taxation Avoidance Treaty (DTAT) with the US was considered in relation to the requirement of having a permanent establishment in the US and submitting returns to the US government. The tribunal emphasized that the impugned service tax amount was in respect of input services used by the appellant for fulfilling legal requirements related to their office in the US, thereby establishing the admissibility of the CENVAT credit and the refund claim.

4. The legal requirements for the permanent establishment in the US and its impact on the eligibility for CENVAT credit were thoroughly examined. The tribunal concluded that the impugned CENVAT credit was admissible as it was used for fulfilling legal requirements related to the appellant's office in the US, setting aside the previous order and allowing the appeal.