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2023 (3) TMI 238 - AT - Service TaxRefund of CENVAT Credit - management consultancy service - real estate agent service - garden maintenance - club and association service - negative list services or not - HELD THAT - From perusal of rule 5 of CENVAT Credit Rules, 2004, it is seen that it is not the utilization of input/input service in exports that has prompted this attractive neutralization scheme but the restricted scope for utilization of credit legitimately availed towards discharge of duty or tax liability. Though referred to as refund, it is also not refund in the true sense that the claimant is not person liable to pay tax or duty having had to pay such duty or tax despite lack of authority of law; the discharge of tax liability by the provider of service, and in accordance with authority of law, is not in question at all. The intent is to neutralize the taxes included, thereby, in the value of goods manufactured or service so that taxes are not exported too. The limited remit of the sanctioning authority, subject to procedural prescription separately notified, is spelt out in the rule itself to limit denial, if any, only to such contingencies and disallowance, if at all, is restricted to the ascertainment of proportion in accordance with that borne by exports to total turnover as mathematical attribution. This has been held by the Tribunal in KKR INDIA ADVISORS PVT. LTD. VERSUS COMMISSIONER OF CGST, MUMBAI CENTRAL AND VICE-VERSA 2018 (6) TMI 797 - CESTAT MUMBAI where it was held that The first step is to a show cause notice invoking Rule 14 of the Cenvat Credit Rules, 2004 for denial of the cenvat credit. Then only the refund can be rejected which was not done. Obviously the refund claim cannot be rejected by disputing the admissibility of the input services. It is seen from the impugned order that no such notice was issued to the appellant herein. The preliminary objections to the refund limited itself to a few objections that appear to have been responded to and none of those have proposed that the said amount of credit was to be recovered. In the absence of this critical requirement to comply with principles of natural justice, the denial of credit is without authority of law and impugned order is set aside. Appeal allowed.
Issues:
1. Dispute over refund entitlement under rule 5 of CENVAT Credit Rules, 2004. 2. Scrutiny of eligibility for credit under rule 3 of CENVAT Credit Rules, 2004. 3. Denial of refund for specific services claimed by M/s Deloitte Global Financial Advisory India Pvt Ltd. 4. Interpretation of 'input service' under rule 2 of CENVAT Credit Rules, 2004. 5. Applicability of rule 14 of CENVAT Credit Rules, 2004 for erasure of credit. 6. Assessment of 'nexus' for credit eligibility. 7. Scope and limitations of rule 5 of CENVAT Credit Rules, 2004. Analysis: 1. The case revolves around the dispute concerning the refund entitlement under rule 5 of CENVAT Credit Rules, 2004, and the scrutiny of eligibility for credit under rule 3 of the same rules. M/s Deloitte Global Financial Advisory India Pvt Ltd sought a refund of &8377;1,54,78,789 for credit availed on taxable services and goods used in services rendered outside the country. The original authority disallowed a portion of the refund, leading to subsequent appeals and the current challenge. 2. The judgment delves into the interpretation of 'input service' as defined in rule 2 of CENVAT Credit Rules, 2004. The impugned order analyzed the definition both pre and post the amendment of April 1, 2004, emphasizing that services must directly contribute to the manufacture of goods or the provision of services to be eligible for credit. Specific services like 'management consultancy service,' 'real estate agent service,' 'garden maintenance,' and 'club and association service' were deemed ineligible for credit due to lack of nexus with the exported services. 3. The denial of refund for the disputed services, despite meeting other eligibility criteria, raised questions about the proper application of the rules. The lower authorities concurred on the ineligibility of 'garden maintenance' and 'real estate agent service,' while differing on the eligibility of 'club and association service.' The appellant cited relevant decisions to support their claim, emphasizing the necessity of secondment of employees for output services. 4. Rule 3 of CENVAT Credit Rules, 2004, subject to rule 4, governs the appropriation of tax credit on procured goods and services. The judgment highlights the importance of correctly utilizing procured goods and services in the manufacturing process or service provision. Failure to reverse credit voluntarily can lead to authorities invoking rule 14 for credit erasure. 5. The concept of 'nexus' in determining credit eligibility is crucial, as it establishes the connection between the input services and the output services. The judgment underscores the need for a clear nexus to ensure the legitimacy of credit claims. The lower authorities were criticized for applying the nexus test only during the refund claim process. 6. Rule 5 of CENVAT Credit Rules, 2004, outlines the mechanism for neutralizing taxes included in exported goods or services. The judgment clarifies that the refund process aims to offset taxes included in the exported value, rather than refunding taxes paid. The denial of credit without following due process, as highlighted in previous Tribunal decisions, was deemed unlawful. 7. The judgment concludes by emphasizing the importance of procedural fairness and adherence to natural justice principles in credit denial cases. The absence of a show cause notice and failure to comply with legal requirements led to the setting aside of the impugned order.
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