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2020 (10) TMI 57 - AT - Service TaxCENVAT Credit - input services - Health Insurance service - Cargo Handling service - Photography Services - period 2009-10 to 2011-12 (up to February, 2012) - denial on the ground of nexus - rejection of refund claim - provisions of Rule 14 ibid at the stage of availment of alleged Cenvat credit not invoked - incorrect application of formula as prescribed under Notification No. 5/2006 C.E. (N.T.) dated 14.03.2006. CENVAT Credit - denial on account of nexus - HELD THAT - Insofar as the definition of input service is concerned, Rule 2(l) ibid defining the said term undergone an amendment vide Notification No. 3/2011 C.E. (N.T.), dated 01.03.2011, w.e.f. 01.04.2011. Under the unamended provisions (effective up to 31.03.2011), the phrase activities relating to business was specifically finding place in the inclusive part of the definition of input service . The inclusive definition in a fiscal statute is a well recognized device to enlarge the meaning of the word defined and it expands the meaning of the basic definition - In the present case, since some portion of the disputed Cenvat credit was availed by the appellant after amendment of the definition of input service w.e.f. 01.04.2011 for the alleged personal benefit of its employees, as per the statutory provisions, the Cenvat credit shall not be available on the disputed services. The impugned order has not quantified the service tax amount availed by the appellant before 01.04.2011 and the period thereafter. Thus, the matter is required to be examined at the original stage for ascertaining the quantum of Cenvat credit availed by the appellant for the period after 01.04.2011 and if such availment of credit is in context with the services for personal use or consumption of the employees, then the benefit of Cenvat credit should not be available to the appellant - matter on remand. Refund of CENVAT credit - non-invocation of provisions of Rule 14 ibid at the stage of availment of alleged Cenvat credit - HELD THAT - In the present case, it is an undisputed fact on record that the department had not proceeded against the appellant for effecting recovery of the allegedly availed irregular Cenvat credit, by taking recourse to Rule 14 ibid read with Section 73 ibid. On the other hand, the department had raised the issue of non-establishment of nexus between the input services and exported output service for the first time, while adjudicating the subject refund claims filed under Rule 5 ibid by the appellant - In view of the settled position of law, there is no requirement of establishing one to one correlation between the input services and the output service. Based on adoption of prescribed formula, the refund application alone should be processed and settled by the department and the aspect of direct nexus or correlation between the input service and output service should not be looked into for such purpose - there are no merits in the impugned orders, insofar as the refund benefit was denied to the appellant on the ground of non-establishment of direct nexus between the input services and the output service exported by it - Refund allowed - decided in favor of assessee. Incorrect application of formula as prescribed under Notification No. 5/2006 C.E. (N.T.) dated 14.03.2006 - HELD THAT - Since, the specific issue regarding adoption of the formula prescribed under Rule 5 ibid has not been discussed by the authorities below, the matter should be remanded to the original authority for a fresh finding on the issue, whether the requirement of the said rule has actually been complied with by the appellant - matter on remand. Appeal allowed in part and part matter on remand.
Issues Involved:
1. Entitlement to Cenvat credit on disputed services (General Insurance, Cargo Handling, and Photography Services) as 'input service' under Rule 2(l) of Cenvat Credit Rules, 2004. 2. Sustainability of rejection of refund claims under Rule 5 without invoking Rule 14 at the stage of availment of alleged Cenvat credit. 3. Adherence to the formula prescribed under Rule 5 for claiming the refund benefit. Detailed Analysis: Issue A: Entitlement to Cenvat Credit on Disputed Services The period of dispute for the impugned order dated 07.10.2013 is from 2009-10 to 2011-12 (up to February 2012). The department denied Cenvat credit on the grounds that the disputed services did not conform to the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004. The appellant argued that General Insurance Services were for employee group accidental insurance, burglar and travel insurance for company assets and employee travel, Cargo Handling Service was for moving household items during employee transfers, and Photography Service was used for business presentations. The appellant ceased availing credit on Health Insurance and Cargo Handling Services after 01.04.2011 due to amendments in the definition of 'input service'. Under the unamended Rule 2(l) (effective up to 31.03.2011), 'activities relating to business' were included in the definition of 'input service'. The Karnataka High Court in Millipore India Pvt. Ltd. and the Allahabad High Court in HCL Technologies extended credit for group personal accident policies, considering them as 'activities relating to business'. Post-amendment (effective from 01.04.2011), certain services like Health Insurance were excluded if used primarily for personal use or consumption of employees. The Tribunal found that the impugned order did not quantify the credit availed before and after 01.04.2011, necessitating a remand to the original authority to ascertain the quantum of Cenvat credit for services used for personal benefit post-01.04.2011. Issue B: Rejection of Refund Claims Without Invoking Rule 14 Rule 3(1) allows a manufacturer or service provider to avail Cenvat credit on inputs/input services, and Rule 14 mandates recovery of wrongly taken/utilised credit through adjudication under Section 73 of the Finance Act, 1994. The Tribunal noted that the department did not initiate recovery proceedings under Rule 14 but raised the issue of non-establishment of nexus between input and exported output services during refund adjudication under Rule 5. A service provider can take credit on input services used in exported output services, with unutilised credit eligible for a refund under Rule 5, subject to conditions specified by the Central Government. Notification No. 5/2006-C.E. (N.T.) dated 14.03.2006, as amended, prescribes a formula for refund based on the ratio of export turnover to total turnover. The Tax Research Unit's letter dated 16.03.2012 clarified that correlation between input services and exports is not required, and refunds should be based on the prescribed formula. The Tribunal found no merit in denying refunds based on non-establishment of direct nexus and allowed the appeal. Issue C: Adherence to the Formula Prescribed Under Rule 5 The Tribunal observed that the refund application must adhere to the prescribed formula under Rule 5 and Notification No. 5/2006-C.E. (N.T.). In Appeal No. ST/22056/2014, the appellant contended that the adjudicating authority did not correctly apply the formula. The Tribunal remanded the matter to the original authority for a fresh finding on whether the formula was correctly applied. Conclusion: (a) Appeal No.ST/20174/2014: The appellant is entitled to Cenvat credit on disputed services up to 31.03.2011. For the period post-01.04.2011, the matter is remanded to quantify credit availed for personal use/benefit of employees. (b) Appeal No. ST/22419/2014: The appeal is allowed, setting aside the impugned order that required direct nexus/correlation between input and exported output services. (c) Appeal No. ST/22056/2014: The matter is remanded to the original authority to determine compliance with the formula under Rule 5. (Order pronounced in open court on 24.09.2020)
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