2023 (5) TMI 392 - AT - Service Tax

Disallowance of CENVAT credit - misconception of law - Disallowance of claim of export of service - scope of Explanation 3 of Section 65B (44) of the Act - Extended period of limitation - penalty - HELD THAT - The show cause notice is wholly misconceived. None of the three conditions prescribed for disallowance of Cenvat credit have been alleged nor found by the court below. For appellant have reflected the amount of credit in ST-3 returns, for the apparent difference in amount of Cenvat credit as per ledger (financial record), no disallowance can be made. Admittedly, the amount of Cenvat credit claimed matches with the amount of credit taken by the appellant in their Cenvat credit Register (statutory document) - the disallowance of Cenvat credit of Rs. 4,01,676/- is set aside. Disallowance of claim of export of service - HELD THAT - The appellant have provided service of market research agency service. Further, admittedly appellant have performed their work in India by collection of data and subsequent preparation of report. Such report have been sent or communicated to the principal located at Singapore via email, for use and reference of the receiver only. Further Admittedly, the principal located at Singapore have made the payment of service, which is received in convertible foreign exchange in India - the appellant and their principal do not fall under definition of distinct person as defined in Clause (f) of Rule 6A of service tax Rule r/w Section 65B (44), explanation 3 thereunder - appellant have exported the service and hence entitled to exemption from levy of service tax. Extended period of Limitation - HELD THAT - The appellant had taken registration before the start of their activity with the service tax department, and have filed periodical returns. Appellant have also maintained proper records of their transactions - the issue is wholly interpretational in nature and there is no element of fraud or misrepresentation on the part of the appellant - the extended period of limitation is not invokable. Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are the disallowance of Cenvat credit and the disallowance of the claim of export of service.

Disallowance of Cenvat Credit:
The appellant, a company engaged in data collection and processing services, entered into an agreement with a company in Singapore for market research services. The revenue alleged that the appellant had taken excess Cenvat credit during a specific financial year. However, the Tribunal found that the conditions for disallowance of Cenvat credit were not met as the appellant had reflected the credit in their returns and maintained proper records, leading to the setting aside of the disallowance.

Disallowance of Claim of Export of Service:
The revenue challenged the appellant's claim of exporting services, arguing that the service was provided in India and did not meet the conditions for export. The Tribunal disagreed, noting that the appellant provided market research services, sent reports to the Singaporean principal, received payment in foreign exchange, and did not fall under the definition of 'distinct person.' As a result, the Tribunal held that the service was indeed exported, entitling the appellant to exemption from service tax. Additionally, the Tribunal determined that the extended period of limitation was not applicable due to the interpretational nature of the issue and the absence of fraud or misrepresentation by the appellant, ultimately allowing the appeal and setting aside the impugned order.