2018 (5) TMI 559 - AT - Service Tax

Refund claim - input services - Diesel Consumption Charges - Out of Scope Charges - denial on the ground that they do not fall in the definition of input service‟ - Held that - as regards Diesel Consumption Charges, it is electricity back-up which is provided by the Landlord. In the case of non-availability of electricity, the company requires diesel generators to resume the operation for which the service provider is collecting the service tax for electricity support without which it would affect the productivity of the service provided and therefore, it falls in the definition of input service‟ - refund allowed. Out of Scope Charges - Held that - these charges are in relation to building maintenance and repair service, which are also essential for rendering the software services and therefore, they are rightly classifiable as input service‟ - refund allowed. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund of unutilized CENVAT credit on Diesel Consumption Charges and Out of Scope Charges under "Management, Maintenance or Repair Service."

Analysis:
The appellant, a Software Export Oriented Unit, filed refund claims for unutilized CENVAT credit. The Asst. Commissioner disallowed part of the claim, which was partially allowed by the Commissioner (A). The appellant appealed against the rejection of refund on Diesel Consumption Charges and Out of Scope Charges. The impugned order was challenged on the grounds that the authorities failed to appreciate the nature of input services. The appellant argued that the Diesel Consumption Charges were for electricity backup services necessary for effective service provision, falling under the definition of "input service." The Out of Scope Charges were claimed to be reimbursements for building maintenance, essential for software service provision. The appellant cited various judicial decisions to support the interpretation of "input service."

The AR reiterated the findings of the impugned order, maintaining the denial of the refund claim on both input services. However, the Tribunal, after considering submissions and precedents, found that the Diesel Consumption Charges were wrongly classified as inputs by the authorities. It was clarified that these charges were for electricity backup provided by the Landlord, essential for maintaining service productivity. If considered as inputs, duty would have been collected, not service tax. Similarly, the Out of Scope Charges related to building maintenance and repair services were deemed essential for software service provision, falling under the definition of "input service." Section 67 stipulates that all reimbursements should be included in the gross amount charged for collecting service tax. Consequently, the Tribunal held that the impugned order denying the refund claim on these services was unsustainable in law and allowed the appeal of the appellant.

The Tribunal's decision set aside the impugned order, emphasizing that the Diesel Consumption Charges and Out of Scope Charges qualified as "input services" eligible for refund. The judgment was pronounced on 16.04.2018.