2022 (12) TMI 56 - AT - Service Tax

Refund of accumulated/unutilized Cenvat Credit of Service tax - services exported out of India - rejection of refund on the ground of being ineligible input services in terms of Rule 2(l) of Cenvat Credit Rules, 2004 being no nexus with the output services - Rule 5 of Cenvat Credit Rules, 2004 r/w Notification No.27/2012 -CE (NT) dated 18.6.2012 - period in dispute is October, 2016 to March, 2017 - HELD THAT - In the matter of M/S BNP PARIBAS INDIA SOLUTION PVT LTD VERSUS COMMISSIONER OF CGST, MUMBAI EAST 2021 (12) TMI 676 - CESTAT MUMBAI this Tribunal while allowing the appeal of the assessee therein allowed the refund claim u/s. 5 ibid by holding that since the provisions of Rule 14 ibid have not been complied with, the refund of Cenvat credit as claimed by the Appellant under Rule 5 ibid cannot be denied. It is settled legal position that in absence of any notice for recovery as provided by Rule 14 ibid the refund claimed by the assessee under Rule 5 cannot be denied. Now I will take the merits of the matter and it has already been held by this Tribunal in the matter of ACCELEYA KALE SOLUTIONS LTD. VERSUS COMMISSIONER, CGST, THANE 2018 (7) TMI 1217 - CESTAT MUMBAI that in such cases the nexus between the input service used in export of service should not be insisted upon - also, the amended provisions of Rule 5 of the rules have also been clarified by the Tax Research Unit of Department of Revenue vide Circular dated 16.3.2012. It has been stated therein that the nexus between the input service used in export of service should not be insisted upon and the benefit of refund should be granted on the basis of ratio of export turnover to total turnover demonstrated by the assessee. The authorities below have erred in rejecting the refund claim of the appellant. Accordingly the impugned order is set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Denial of refund of accumulated/unutilized Cenvat Credit of Service tax.
2. Rejection of refund claims due to ineligible input services.
3. Compliance with Rule 14 of Cenvat Credit Rules, 2004.
4. Establishment of nexus between input services and output services.

Issue-Wise Detailed Analysis:

1. Denial of Refund of Accumulated/Unutilized Cenvat Credit of Service Tax:
The appellant challenged the Order-in-Appeal dated 11.3.2019, where the Commissioner (Appeals)-II, Central Tax, CGST Mumbai, partially modified the adjudicating authority's order but upheld the rejection of a refund amounting to Rs.22,88,870/-. The main issue was the denial of refund of accumulated/unutilized Cenvat Credit of Service tax under Rule 5 of Cenvat Credit Rules, 2004, read with Notification No.27/2012-CE (NT) dated 18.6.2012.

2. Rejection of Refund Claims Due to Ineligible Input Services:
The appellant provided Financial Investment Advisory Services exclusively to overseas clients and filed refund claims for the periods October 2016 to December 2016 and January 2017 to March 2017, totaling Rs.2,10,44,635/-. The Adjudicating Authority rejected Rs.36,86,969/- of the refund claim, citing unregistered premises and lack of nexus between input services and export services. The Commissioner (Appeals) allowed Rs.13,98,099/- but upheld the rejection of Rs.22,88,870/- due to 'no nexus' with the output service.

3. Compliance with Rule 14 of Cenvat Credit Rules, 2004:
The appellant argued that Rule 14 of Cenvat Credit Rules, 2004, was not followed while rejecting the refund claim. The appellant cited several Tribunal decisions, including BNP Paribas India Solution Pvt. Ltd. vs. Commr. CGST, Mumbai East, which held that denial of Cenvat credit can only be done by issuing a notice under Rule 14. Since the department did not question the availment of credit under Rule 14, the refund could not be denied on the grounds of non-establishment of nexus.

4. Establishment of Nexus Between Input Services and Output Services:
The Tribunal reiterated that Rule 5 of the Cenvat Credit Rules, as amended, does not require the establishment of a nexus between input services and output services. The Tribunal referred to previous decisions, including Accelya Kale Solutions Ltd. vs. Commr. CGST, Thane, which clarified that post-2012, the refund should be allowed based on the formula prescribed under Rule 5 without insisting on any nexus. The Tribunal emphasized that the amended Rule 5 does not necessitate a correlation between input services and exported services, and the refund should be granted based on the ratio of export turnover to total turnover.

Conclusion:
In conclusion, the Tribunal found that the authorities below erred in rejecting the refund claim. The Tribunal set aside the impugned order and allowed the appeal with consequential relief, if any, in accordance with the law. The Tribunal reinforced that in the absence of a notice under Rule 14, the refund of Cenvat credit under Rule 5 could not be denied, and the nexus between input and output services should not be insisted upon. The judgment was pronounced in open court on 01.12.2022.