2025 (2) TMI 899 - AT - Service Tax

Cenvat credit in respect of input services used for exporting output services - denial on various grounds including their output service not being a taxable service as also on account of input services not having any nexus with the output service. Whether in the absence of sufficient documents or description in the export invoice can the service be treated as non-taxable or exempt service as such? - HELD THAT - Admittedly there is an agreement in terms of which many kinds of services are required to be provided to their parent company. However there has not been any attempt to classify those services under the category of one or more taxable services after going through the details of the said services. Therefore apart from the services being claimed under BSS or ITSS there could be possibility that some of these activities may not at all be in the nature of service or they would probably fall under some other service head. We also find that there is a clear provision under Rule 4A to give inter alia specific description of the services irrespective of whether it is meant for consumption within the country or abroad. Since they have used only abbreviated/short terms in their export invoices the Adjudicating Authority was correct that it would not be possible for them to classify the same and since the appellant failed to convince the department that their export services are taxable the next question would be whether the credits would also be not admissible in view of the fact that the services were exempted services without resorting to proving any nexus or otherwise. A great deal of services are covered within the category of agreements and covered within the schedule to the agreements. Schedule-A covers operational services development with generic description as development. The definition itself says that to provide services and developmental support and gives certain examples. Merely by going through these services one cannot arrive at proper classification during the pre-negative list regime where each and every activity has to be classified under specific heading of taxable services. This is not the finalization of classification as proposed/submitted by the appellant rather only an observation by the Commissioner (Appeals) and the entire matter was remanded back to the Original Authority for reexamination and to be decided on merit. If they are treated as taxable service can the credit be allowed if there is no nexus between the input service and the output service? - HELD THAT - Since it is already held that the export service is non-taxable/exempt service they have not gone into the issue of ineligibility on account of nexus between input and output services. It is seen the nature of services in respect of which the credit has been taken and find that most of these services would be eligible in view of settled legal position. However since this issue has not at all been discussed by the Adjudicating Authority even when the same was one of the grounds for denying the credit in the SCN we feel that to that extent the impugned orders are non-speaking. More so when some of these services may be having nexus while some of them may not at all be having nexus with the output service. Conclusion - The appeals are allowed by way of remand with direction that the Adjudicating Authority will go through the submissions both on the grounds of proper classification as well as the nexus before arriving at the final demand in case of inputs not having been considered eligible either on account of nexus or on account of concerned export service not being taxable service. Appeals are allowed by way of remand.

Summary

The judgment by the Appellate Tribunal addressed an appeal by M/s Novartis Healthcare Pvt Ltd (referred to as the Appellant) against certain orders denying Cenvat credit for input services used in exporting output services. The core legal issues considered in the judgment are as follows:1. Whether the exported services were taxable or exempt.2. Whether there was a nexus between the input services and the output services.The Tribunal examined the Adjudicating Authority's reasoning and the arguments presented by both parties. The Adjudicating Authority had denied credit based on the lack of clear description in export invoices and the absence of nexus between input and output services. The Authority held that without proper classification and documentation, the services exported were considered non-taxable or exempt.Regarding the first issue, the Tribunal found that the Adjudicating Authority's decision was based on the lack of detailed descriptions in the export invoices, preventing proper classification of the services. The Tribunal noted the statutory requirement for specific service descriptions in invoices and emphasized that procedural lapses should not deny substantive rights. The Tribunal acknowledged the complexity of the services provided under the agreements but highlighted the need for clear classification under taxable services.On the second issue of nexus between input and output services, the Adjudicating Authority did not address this aspect adequately, focusing instead on the classification of exported services as exempt. The Tribunal recognized that some activities might fall under taxable services and emphasized the importance of establishing nexus for credit eligibility.The Tribunal also considered the appellant's reliance on a previous Mumbai Bench decision regarding refund claims under Cenvat Credit Rules. However, the issues in the present case differed as the eligibility of credit itself was under challenge, not just the refund claims.Ultimately, the Tribunal allowed the appeals by way of remand, directing the Adjudicating Authority to reexamine the issues of proper classification of services and the nexus between input and output services. The Tribunal emphasized the importance of determining eligibility for credit based on the nature of services provided and their classification under taxable services.In conclusion, the Tribunal's decision focused on the necessity of clear documentation and classification of services for determining taxability and credit eligibility, emphasizing the need for a thorough analysis of the nexus between input and output services.