2022 (8) TMI 1155 - AT - Service Tax

Refund claim - certain credits which have been taken for computation of the refund in terms of Rule 5 of the Cenvat Credit Rules are ineligible credits - quantification of credit by formula as prescribed by Notification No.05/2006 - HELD THAT - Admittedly no proceedings have been initiated against the appellant for denial of such credit in terms of Rule 14 of the Cenvat Credit Rules. In absence of such proceedings, the lower authorities cannot be justified in modifying the refund claims for this reason. On perusal of the Form A at Sl No 3, it is quite evident that for computation of the Net CENVAT Credit is done on the basis of total cenvat credit taken on inputs and input services. From the total CENVAT Credit taken deductions is made of the amounts reversed under Rule 5C of the CENVAT Credit Rules, 2004. The formula is very clear on this aspect that no deduction from the total cenvat credit taken will be made on any other account while computing the Net CENVAT Credit. The formula under Rule 5 determines the maximum eligible refund to the assessee (10, 11 of the Form A). Whatever taxes are paid utilizing the cenvat credit availed during the period will automatically get deducted because if an assessee has utilized certain portion of the credit, then that amount would not be available as a balance on the close of the month/quarter in which the refund is sought. This Balance of CENVAT Credit is stated at Sl No 12 in the Form A. It is also clear that that while filing the refund claim claimant has to debit the amount claimed by him as refund under Rule 5 from his CENVAT Account. Above prescriptions clearly show that the lower authorities have been in error while deducting the amount of the credit that would have been utilized for payment of the taxes/duties in respect of the domestic clearances from the total CENVAT Credit taken while determining the Net CENVAT Credit for application of formula as per Rule 5. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Rejection of refund claims under Rule 5 of the Cenvat Credit Rules, 2004.
2. Modification of refund claims due to ineligible credits.
3. Deduction of Cenvat credit utilized for domestic services from the total Cenvat credit availed.

Issue-Wise Detailed Analysis:

1. Rejection of Refund Claims under Rule 5 of the Cenvat Credit Rules, 2004:
The appellant, engaged in providing support services to its group companies outside India and domestic clients, filed refund applications under Rule 5 of the Cenvat Credit Rules read with Notification No. 05/06-CE(NT) dated 14.03.2006 for the periods October 2009 to March 2010 and April 2010 to September 2010. These claims were partially rejected, leading to appeals to the Commissioner (Appeals), who upheld the partial rejection, resulting in the current appeals.

2. Modification of Refund Claims Due to Ineligible Credits:
The first ground for modifying the refund claims was that certain credits taken for the refund computation under Rule 5 were deemed ineligible. However, no proceedings were initiated against the appellant for denial of such credit under Rule 14 of the Cenvat Credit Rules. The Tribunal noted that without such proceedings, the lower authorities could not justify modifying the refund claims. This view aligns with the Tribunal's previous decisions in similar cases, such as BNP Paribas India Solutions Pvt. Ltd. [2022 (58) GSTL 539 (Tri.-Mum)] and Maersk Global Services Centres (I) Pvt. Ltd., where it was established that denial of Cenvat credit must follow Rule 14 procedures.

3. Deduction of Cenvat Credit Utilized for Domestic Services from the Total Cenvat Credit Availed:
The second issue involved the Assistant Commissioner deducting the amount of Cenvat credit that could have been used for paying service tax on domestic services from the total Cenvat credit availed. The Tribunal found that the formula prescribed by Notification No. 05/2006 is based on the total Cenvat credit availed during the refund claim period. Any deduction from this total is contrary to the formula's prescription. The Tribunal emphasized that the formula does not require correlation between input services and exported services, as clarified by the Tax Research Unit's circular dated 16-3-2012. The Tribunal cited several cases, including Qualcomm India Pvt Ltd [2020 (43) GSTL 402 (T-Hyd)], which supported the view that the refund calculation should strictly follow the prescribed formula without additional deductions.

Conclusion:
The Tribunal concluded that the lower authorities erred in modifying the refund claims on both grounds. The impugned order was set aside, and the appeals were allowed. The Tribunal reiterated that any denial or modification of Cenvat credit must follow the specific provisions and procedures outlined in the Cenvat Credit Rules, particularly Rule 14, and the refund calculations must adhere to the prescribed formula without unauthorized deductions.

Order:
The impugned order is set aside, and the appeals are allowed.