2008 (10) TMI 84 - AT - Service Tax

100% EOU - refund claim of unutilized credit was rejected on ground that services on which credit has been availed during the quarter April 2006 to June 2006 could not be wholly consumed for export done during the quarter in question held that refund of unutilized credit balance at end of quarter is admissible, though services have not been fully utilized in that quarter as one to one co-relation between input service & exported good is not required credit on mobile phone is also admissible

Summary

Issues:
Refund claim rejection based on services not wholly consumed for export; Inadmissibility of service tax credit on mobile phones; Interpretation of Rule 5 of Cenvat Credit Rules, 2004 regarding credit utilization for exported goods.

Analysis:
The appeal challenged the rejection of a refund claim amounting to Rs.74,469 by lower authorities due to services not wholly consumed for export during a specific quarter. The services in question included Consultation Engineering Service, Insurance Premium Employees (PA Policy), Maintenance & Repair Service, Service Charge, Legal and Professional Expenses, and Mobile Phones. Additionally, the inadmissibility of service tax credit on mobile phones was highlighted in the judgment.

The advocate for the appellants argued that the lower authorities wrongly sought one-to-one correlation between input services and final product exported, emphasizing that such correlation was unnecessary. The advocate contended that credit of service tax could be availed for services used for the intended purpose without the need for direct correlation with the final product. The legislative history of Rule 5 of Cenvat Credit Rules, 2004 was cited to support the argument that the interpretation adopted by the lower authorities was incorrect.

The judgment pointed out that the requirement of one-to-one correlation had been abandoned previously and could not be selectively enforced for 100% Export Oriented Units (EOUs). It was emphasized that the services for which credit had been claimed could not be directly linked to goods exported in a particular quarter, especially in cases like repairs where the services might extend beyond a single quarter. The judgment highlighted that if the appellants had clearances to the domestic tariff area, they could have used the credit for duty payment without the need for direct correlation.

The Tribunal concluded that the appellants were entitled to use the credit of service tax paid on the services for domestic clearances, even if the credit could not be utilized during the quarter due to the absence of domestic clearances. The judgment clarified that once the credit was admissible, the appellants were eligible for a refund without the necessity of one-to-one correlation. The appeals were allowed, granting the appellants consequential relief.

In summary, the judgment addressed the rejection of a refund claim based on services not fully consumed for export, the inadmissibility of service tax credit on mobile phones, and the interpretation of Rule 5 of Cenvat Credit Rules, 2004 regarding the utilization of credit for goods exported. The Tribunal emphasized that one-to-one correlation was not required for credit utilization and ruled in favor of the appellants, allowing the appeals with consequential relief.