2019 (11) TMI 1467 - AT - Service Tax

Refund of CENVAT Credit - input services - Sponsorship Service - denial on account of nexus - reverse charge mechanism - period from January 2015 to June 2015 - N/N. 18/2012-CE(NT) dated 17.03.2012. HELD THAT - The benefit of refund on service tax paid on the input services is available to an assessee, upon compliance of the formula prescribed there under. Rule 5 ibid nowhere specifies that the input services should be used directly in providing the exported output service by an assessee, which was the requirement under the un-amended Rule 5 ibid, effective up to 01.04.2012. Thus, under the amended provisions of Rule 5 ibid, in vogue, there is no requirement of use of specific input service(s) for providing the exported output service - the denial the refund benefit on ground of establishment of nexus between input and output services cannot be sustained. The appellant had not submitted the documentary evidence regarding payment of service tax on the basis of Reverse Charge Mechanism. Since, the appellant had claimed the benefit of refund in respect of service tax paid on the input services, the onus entirely lies on it to prove with the help of documentary evidences that in fact, it had discharged the service tax liability, as recipient of taxable service under the Reverse Charge Mechanism. However, it is observed that the appellant did not submit any evidence before the lower authorities in this regard. The appellant submits that due service tax liability had been discharged it under proper documentation. Thus, on the ground of non-submission of evidence regarding payment of service tax on Sponsorship Service, the matter should be remanded to the original authority for verification of the evidence regarding payment of service tax amount by the appellant under the Reverse Charge Mechanism. Appeal allowed in part and part matter on remand.

Issues:
1. Denial of refund benefit under Rule 5 of Cenvat Credit Rules, 2004.
2. Requirement of establishment of nexus between input and output services.
3. Non-submission of evidence regarding payment of service tax under Reverse Charge Mechanism.
4. Lack of submission of relevant invoices to demonstrate payment of service tax.

Analysis:

Issue 1: Denial of refund benefit under Rule 5 of Cenvat Credit Rules, 2004
The appellant challenged the order rejecting the refund benefit under Rule 5 of Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld the rejection, stating that the disputed services were not considered as input services for business activities. The period in dispute was from January 2015 to June 2015. The amended Rule 5, effective from April 1, 2012, allows refund of Cenvat credit upon compliance with the prescribed formula. The Judge noted that under the amended provisions, there is no requirement of direct use of specific input services for providing exported output services. Denial of refund based on the establishment of nexus between input and output services was deemed unsustainable. The Judge emphasized that the denial should be confined to compliance with Rule 5, and the establishment of nexus cannot be insisted upon.

Issue 2: Requirement of establishment of nexus between input and output services
The Judge highlighted that the department did not proceed under Rule 14 for denying ineligible Cenvat credit to the appellant. The denial of Cenvat benefit based on the non-establishment of nexus was deemed not sustainable for judicial scrutiny. The Judge emphasized that the denial should focus on whether the requirements of Rule 5 have been met.

Issue 3: Non-submission of evidence regarding payment of service tax under Reverse Charge Mechanism
The appellant failed to submit documentary evidence regarding the payment of service tax under the Reverse Charge Mechanism. The onus lies on the appellant to prove the discharge of service tax liability as a recipient of taxable services under the Reverse Charge Mechanism. The Judge decided to remand the matter to the original authority for verification of evidence regarding the payment of service tax on Sponsorship Service.

Issue 4: Lack of submission of relevant invoices to demonstrate payment of service tax
The appellant did not submit relevant invoices to demonstrate payment of service tax on the input services claimed for a refund. The original authority was directed to examine the invoices to ascertain whether the service tax was paid on those invoices claimed for a refund by the appellant. The matter was remanded for fresh adjudication on the issues of Sponsorship Service and verification of invoices, with the appellant granted a personal hearing.

In conclusion, the impugned order was set aside, and the appeal was allowed in favor of the appellant regarding the denial of refund benefit based on the establishment of nexus between input services and the exportation of output services. The matter concerning Sponsorship Service and verification of invoices was remanded for further adjudication.

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