2020 (1) TMI 101 - AT - Service Tax

Refund of CENVAT Credit - common input services used for taxable as well as exempt services - they have availed CENVAT credit in proportion to the taxable services rendered - Rule 5 of CENVAT Credit Rules 2004 read with Notification No. 5/2006-CE(NT) dated 14.03.2006 - HELD THAT - It is a well settled principle that availment of CENVAT credit, its utilisation and its refund are different aspects dealt with under CCR 2004. Rule 5 of CENVAT Credit Rules 2004 provides for refund of CENVAT Credit in respect of goods/services exported out of India. Nowhere in this rule 5, is there a provision to determine whether availment of CENVAT Credit in the first place is correct or otherwise. There is a separate provision for recovery of irregularly availed CENVAT credit under Rule 14 of CENVAT Credit Rules 2004. There are also provisions for recovery of interest as well as imposition of penalties if any CENVAT Credit is irregularly availed - thus, the rejection of refund of CENVAT Credit partly on the ground that the input services are not eligible for CENVAT Credit at all is not correct in law. As far as the appellant s assertion that the formula given in Notification No. 5/2006-CE(NT) dated 14.03.2006 for determining the maximum refund has been wrongly applied by the lower authorities is concerned, we find that this needs factual verification in each case. For this limited purpose of calculation we remand the matter to the original authority - The third issue raised by the appellant that they have not availed CENVAT credit in respect of the exempted services which they have exported also gets subsumed and taken care of in this calculation - appeal allowed by way of remand.

Summary

Issues:
Refund claims denial based on ITSS being exempt, incorrect CENVAT credit on certain input services, incorrect application of the formula for determining maximum refund.

Analysis:
1. The appellant, engaged in customised software development and ITES services, filed refund claims under Rule 5 of CENVAT Credit Rules 2004. The lower authority partly disallowed the claims, leading to appeals. The appellant argued that the refund was denied due to ITSS exemption, incorrect CENVAT credit on input services, and misapplication of the refund formula.

2. The appellant contended that denial based on ITSS exemption was incorrect as Rule 5 deals with refund, not credit availment. CENVAT credit admissibility is separate and governed by Rule 14. Legal precedents support that credit cannot be denied while deciding refunds. The appellant hadn't availed CENVAT credit for exempted services, challenging the formula's misapplication.

3. The Revenue argued that the formula was correctly applied, allowing refund only for taxable output services. They asserted that refund for wrongly availed CENVAT credit on ineligible input services is impermissible under CENVAT Credit Rules 2004.

4. The Tribunal held that CENVAT credit, its utilization, and refund are distinct under CCR 2004. Rule 5 focuses on refund, not credit eligibility. Denying refund based on input service eligibility is legally incorrect. The formula's correct application required factual verification, leading to remand for calculation.

5. Consequently, the appeals were allowed, granting refund even for allegedly ineligible input services. Denial based on input service eligibility was set aside, and the matter was remanded for recalculating the refund amount per the correct formula. The Tribunal emphasized the need for accurate application of the refund formula without modifications.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT HYDERABAD highlights the legal arguments, precedents, and the Tribunal's decision regarding the denial of refund claims based on various grounds, ensuring a comprehensive understanding of the case.