2024 (4) TMI 861 - AT - Service Tax

Refund of Cenvat Credit - 100% EOU / STPI unit - Export of services as well as providing services to Domestic Tariff Area (DTA) units - section 11B of the Central Excise Act, 1944 - disallowance of CENVAT Credit, wrongly taken by the party on ineligible input services - demand alongwith interest and penalty - Time Limitation - HELD THAT - The manner in which the issue has been handled and decided by the lower authorities is not only unique but is totally alien to the legal provisions outlined by Finance Act, 1994 and the rules made there under. In case the revenue authorities were of the view that certain amount of tax due was not paid by the appellant, then the proper course would have been to confirm the demand under Section 73 of the Finance Act, 1994 and recover the amount so confirmed, from the amounts admissible as refund to the appellants by appropriating the same against amounts confirmed. It could have been adjusted against the amount available in the CENVAT credit as admissible credit. Non payment of some amounts towards due service tax liability cannot be reason for denial of CENVAT Credit or the refund under Rule 5. All operate under separate sphere and needs to be examined as per the parameters laid down as per law. Time Limitation - HELD THAT - There are no merits in the impugned order in view of the decision of larger bench in case of CCE CST, BENGALURU SERVICE TAX-I VERSUS M/S. SPAN INFOTECH (INDIA) PVT. LTD. 2018 (2) TMI 946 - CESTAT BANGALORE where it was held that in respect of export of services, the relevant date for purposes of deciding the time limit for consideration of refund claims under Rule 5 of the CCR may be taken as the end of the quarter in which the FIRC is received, in cases where the refund claims are filed on a quarterly basis. Penalty - HELD THAT - As the demand made in the orders of the lower authorities is not sustainable, the penalty imposed also is set aside. There are no merits in the impugned order on any count - appeal allowed.

Summary

Issues Involved:
1. Rejection of refund claims u/s 11B of the Central Excise Act, 1944.
2. Disallowance of Cenvat Credit on ineligible input services.
3. Imposition of penalty u/s 78 of the Finance Act, 1994.
4. Applicability of SEZ provisions to STPI units.
5. Limitation period for filing refund claims.

Summary:

1. Rejection of Refund Claims u/s 11B of the Central Excise Act, 1944:
The appellant, a 100% EOU under STPI Scheme, filed four refund claims under Rule 5 of Cenvat Credit Rules, 2004, for refund of cenvat credit taken on inputs/input services used for export of services. The adjudicating authority rejected these claims, stating that if the appellant had discharged his service tax liability properly, there would not have been any accumulated cenvat credit for claiming refund. The impugned order upheld this decision, rejecting the refund claims.

2. Disallowance of Cenvat Credit on Ineligible Input Services:
The adjudicating authority disallowed the Cenvat Credit claimed by the appellant on ineligible input services and ordered the recovery of the said amount u/s 73 of the Finance Act, 1994, along with the due amount of interest. The impugned order upheld this decision, stating that the appellant had misused the provisions of the SEZ/STPI scheme with the intent to evade payment of service tax.

3. Imposition of Penalty u/s 78 of the Finance Act, 1994:
A penalty equal to the disallowed Cenvat Credit amount was imposed on the appellant u/s 78 of the Finance Act, 1994, for willful violation and misuse of the provisions of the SEZ/STPI scheme. The impugned order upheld this penalty, finding no merit in the appellant's appeal.

4. Applicability of SEZ Provisions to STPI Units:
The impugned order referenced Rule 19(7) of the SEZ Rules, 2006, which mandates that a company operating both under DTA and SEZ/STPI shall have two distinct identities with separate books of account. It was held that the appellant's STPI unit and DTA units are distinct entities, and service tax is leviable on service consideration realized from the DTA units in the name of salary and other allowances.

5. Limitation Period for Filing Refund Claims:
The impugned order's stance on the limitation period for filing refund claims was found to be inconsistent with the decision of the larger bench in the case of Span Infotech (India) Pvt Ltd. and the Karnataka High Court in Suretex Prophylactics India Pvt. Ltd., which held that the relevant date for the purposes of deciding the time limit for refund claims should be the end of the quarter in which the FIRC is received.

Conclusion:
The appeals were allowed, and the impugned order was set aside on all counts, including the rejection of refund claims, disallowance of Cenvat Credit, and imposition of penalties. The adjudicating authority's approach was found to be alien to the legal provisions outlined by the Finance Act, 1994, and the rules made thereunder.