2016 (12) TMI 34 - AT - Service Tax

Refund - CENVAT credit - 100% EOU - export of services or not - scientific or technical consultancy service - Appellant avails CENVAT credit on inputs/input services as per CENVAT Credit Rules, 2004 but, being an exporting unit, is unable to utilize the accumulated CENVAT credit. Refund of the accumulated credit is claimed under rule 5 of CENVAT Credit Rules, 2004 - POPOS rules - Held that - the location of performance of service in respect of goods is not an abstract, absolute expression for fastening tax liability on services that involve goods in some way; for that, rule 3 would have sufficed. A contingency that is not amenable to rule 3 has been foreseen and remedied by rule 4. And in the process, the sovereign jurisdiction to tax is asseted. It is, therefore, not by the specific word or phrase in rule 4(1) of Place of Provision of Services Rules, 2012 that the taxability is to be determined but from the mischief effect intended to be plugged. It is obviously not intended to tax any activity rendered on goods as to alter its form because that would be covered by excise on manufacture or be afforded privileges available to merchandise trade. The provision itself excludes goods imported temporarily for repairs but that does not, ipso facto, exempt goods imported temporarily for repairs from taxability which would, by default, be predicated by the intent in rule 3. Consequently, a recipient in India would be liable to tax on such temporary imports for repairs while service to a recipient located abroad would not be taxable. This is in consonance with the privilege of exemption afforded to export of services. The goods supplied to the respondent, minor though the proportion may be, are subject to alteration in the course of research. It is not asserted anywhere that these goods, in its altered or unaltered form, are sent back to the service recipient; if it were, the provisions of Customs Act, 1962 would be invoked to eliminate tax burden. If the goods cease to exist in the form in which it has been supplied, it cannot be said that services have been provided in respect of goods even if it cannot be denied that services have been rendered on the goods. Consequently, the provisions of rule 4(1) are not attracted and, in terms of rule 6A of Service Tax Rules, 1994, the definition of export of services is applicable thus entitling the appellant to eligibility under rule 5 of CENVAT Credit Rules, 2004. The respondents to be entitled to refund of accumulated CENVAT credit - appeal dismissed - decided in favor of assessee-respondent.

Issues Involved:
1. Eligibility for refund of accumulated CENVAT credit under rule 5 of CENVAT Credit Rules, 2004.
2. Determination of place of provision of service under Place of Provision of Services Rules, 2012.
3. Interpretation of rule 6A of Service Tax Rules, 1994 in the context of export of services.
4. Application of rule 4 of Place of Provision of Services Rules, 2012 to services rendered in respect of goods.
5. Legislative intent and principles governing the taxation of export services.

Issue-wise Detailed Analysis:

1. Eligibility for Refund of Accumulated CENVAT Credit:
The respondent, a 100% Export Oriented Unit, claimed refunds for accumulated CENVAT credit under rule 5 of CENVAT Credit Rules, 2004, due to its inability to utilize the credit. The original authority partially sanctioned and partially rejected these claims, which led to appeals. The first appellate authority allowed the respondent's appeals, leading to the current dispute. The Tribunal upheld the respondent's eligibility for refund, emphasizing the principle that exports are not liable to be taxed.

2. Determination of Place of Provision of Service:
Revenue contended that the place of provision of service is in India based on rule 4 of Place of Provision of Services Rules, 2012, which states that if goods are required to be made physically available to the service provider, the location of performance is pertinent. The Tribunal, however, highlighted that the primary principle is that exports should not be taxed, and the place of provision of service rules should not override this principle.

3. Interpretation of Rule 6A of Service Tax Rules, 1994:
The Tribunal noted that rule 6A of Service Tax Rules, 1994, defines export of services, which includes criteria such as the service provider being in a taxable territory, the recipient being outside India, and payment being received in convertible foreign exchange. The Tribunal found that the services rendered by the respondent met these criteria, thus qualifying as export of services.

4. Application of Rule 4 of Place of Provision of Services Rules, 2012:
The Tribunal examined whether the services rendered by the respondent involved goods that were required to be made physically available. It concluded that even if some activities were carried out in India, the overall performance and satisfaction of the service occurred outside India. Therefore, the services should be considered as exports, and rule 4(1) of Place of Provision of Services Rules, 2012, should not be interpreted to deny the export status of these services.

5. Legislative Intent and Principles Governing Taxation of Export Services:
The Tribunal emphasized that the legislative intent behind the Place of Provision of Services Rules, 2012, and the Service Tax Rules, 1994, was not to tax exports. It reiterated that the principle of not taxing exports is embedded in all indirect tax statutes. The Tribunal referred to previous judicial decisions that supported this view and concluded that the respondent's services should be treated as exports, entitling them to a refund of accumulated CENVAT credit.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the respondent's entitlement to refunds, reiterating the consistent judicial stance that exports should not be taxed. The decision reinforced the principle that rules should not be interpreted in isolation to deny the benefits of export status to service providers.

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