2024 (6) TMI 1183 - AT - Service Tax

Refund of input service credit under Rule 5 of CENVAT Credit Rules, 2004 - export of services or not - services provided by the appellant herein to the foreign entity - periods from April 2010 to June 2010 and January 2010 to March 2010 - HELD THAT - The Appellant is not to market the product of the foreign supplier to Indian entity but rather to identify suppliers within India; supplier has been defined in the same agreement to be companies entrusted by the Agent for the manufacture of Merchandise . It is hence clear that the lower authorities have seriously erred in misunderstanding the facts and thereby deny the CENVAT credit availed by the appellant as inadmissible. This Bench had an occasion to consider an almost similar issue recently, in the case of MANALI PETROCHEMICALS LTD. PLANT I VERSUS COMMISSIONER OF GST CENTRAL EXCISE, CHENNAI 2024 (6) TMI 848 - CESTAT CHENNAI where it was held that ' It is clear from the above that the role of the appellant is to render service to the Japan based service receiver, in delivering the product manufactured outside India, to the ultimate consumer in India namely Whirlpool Ltd.' It is apt to refer to the CBEC Circular No. 111/05/2009 ST dated 24.02.2009, wherein the board has clarified the phrase used outside India to mean that the benefit of the service should occur outside India, where it was held that ' what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III Rule 3(1)(iii) services as well.' The action of the authorities in denying the CENVAT credit is unsustainable and is set aside - appeal allowed.

Summary

Issues:
1. Denial of CENVAT credit by the authority based on the Export of Service Rules.
2. Interpretation of the Buying Agency Agreement and the nature of services provided.
3. Application of judicial precedents and CBEC Circular in determining the eligibility for CENVAT credit.

Analysis:
1. The case involved the appellant filing refund claims for input service credit under Rule 5 of CENVAT Credit Rules, 2004. The department contended that the services provided were not eligible for export of service benefits under Rule 3 of Export of Service Rules, 2005, as they were used in India. The first appellate authority allowed the Revenue's appeals due to the absence of representations from the respondent. The tribunal examined whether the denial of CENVAT credit was justified based on the Export of Service Rules.

2. The tribunal analyzed the Buying Agency Agreement between the foreign entity-service recipient and the appellant. It highlighted that the appellant's role was to identify suppliers within India, not to market products to Indian entities. The agreement specified functions related to supplier selection, quality control, delivery dates, customs procedures, and payment facilitation. The tribunal emphasized that the lower authorities erred in denying the CENVAT credit, as the services were not aimed at Indian consumers but at facilitating the foreign entity's product delivery in India.

3. The tribunal referenced a similar case and judicial precedents to support its decision. It cited a previous case where the service provider's understanding was with the foreign service recipient, not the Indian consumer, emphasizing that the service's benefit extended to ultimate consumers in India. Additionally, the tribunal referred to a CBEC Circular clarifying that services used outside India should accrue benefits outside India. Based on the analysis and discussion, the tribunal concluded that the denial of CENVAT credit was unsustainable. It set aside the impugned order and allowed the appeals with any consequential benefits as per the law.