2022 (8) TMI 761 - HC - Service Tax

Refund of unutilized CENVAT Credit - export of legal services - services on which no tax was payable by the Respondent - service provided by the Respondent fell under the definition of Output service as defined under Section 2(p) of the CENVAT Credit Rules, 2004 or not - HELD THAT - A plain reading of Rule 2(p) of the 2004 Rules would show that the definition of output service has the following attributes First, the service should be provided by a provider of service who is located in the taxable territory. Second, the service provided by the service provider should not fall in the negative list of services, as adverted to in Section 66D of the 1994 Act. Third, in cases where the whole i.e., the entire service tax is liable to be paid by the recipient of service, such service would not fall within the definition of output service . Insofar as the assessee is concerned, there is no dispute that it is located within the taxable territory i.e., in India. It is also not disputed that the assessee does not fall within the negative list of the services provided under Section 66D of the 1994 Act. Thus, it cannot but be concluded that the said exclusionary provision i.e., Subrule (2) of Rule 2(p) of the 2004 rules, is not applicable to the assessee, as in respect of legal service exported by it, service tax is not paid by the recipient of service. The recipient of service is located outside the taxable territory and therefore, this provision can only apply to legal services offered by the assessee to the recipient of service located within the taxable territory. Clearly, the definition of exempted service excludes services which are exported in terms of Rule 6A of the 1994 Rules - the questions of law framed hereinabove are answered in favour of the assessee and against the revenue - the appeal filed by the revenue is dismissed.

Summary

Issues Involved:
1. Eligibility for refund of CENVAT Credit on services where no tax was payable.
2. Classification of services under the definition of "Output service" as per Section 2(p) of the CENVAT Credit Rules, 2004.
3. Legitimacy of the Tribunal's decision to allow the refund claims of the Respondent.

Detailed Analysis:

1. Eligibility for Refund of CENVAT Credit:
The core issue is whether the assessee is entitled to a refund of unutilized CENVAT credit under the CENVAT Credit Rules, 2004. The assessee, a firm of legal practitioners, provides legal services both domestically and internationally, with 75-80% of its receipts coming from the export of legal services. The revenue initially sanctioned a refund of unutilized credit for the periods in question but later reversed this decision upon review by the Principal Commissioner, Service Tax. The Tribunal allowed the assessee's appeal for a refund, which the revenue contested, arguing that since the assessee did not pay service tax on exported services, it was not eligible for CENVAT credit.

2. Classification under "Output Service":
The revenue argued that the services provided by the assessee did not qualify as "output service" under Rule 2(p) of the 2004 Rules because the service tax was not paid by the recipient. The Tribunal, however, concluded that the definition of "output service" includes services provided by a provider located in the taxable territory, except when the entire service tax is paid by the recipient. Since the legal services exported by the assessee did not involve the recipient paying service tax, the exclusionary provision did not apply.

3. Legitimacy of the Tribunal's Decision:
The Tribunal's decision was based on a correct interpretation of the relevant rules and provisions. The High Court examined Section 68 of the Finance Act, 1994, Rule 2(p) and Rule 5 of the 2004 Rules, and the notification dated 20.06.2012. It was determined that the assessee's services, being exported, did not fall under the negative list of services and were eligible for a refund of CENVAT credit. The High Court also dismissed the revenue's analogy with exempted services, noting that Rule 6(7) of the 2004 Rules excludes exported services from its ambit.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the assessee is entitled to a refund of unutilized CENVAT credit for exported legal services. The questions of law were answered in favor of the assessee, and the revenue's appeal was dismissed.