2012 (12) TMI 73 - HC - Service Tax

Claim of Refund on Input Services - Classification of Service - whether a particular service falls under the category business auxiliary service or information technology service - services of preparation of Federal Tax Returns, preparation of State, Local Tax Returns, Co-sourcing services, Analyzing Client Data and calculating estimates of tax amount, preparation of the extension requests, preparation of the Consolidated Federal and the State/Local Returns and in filing of returns and from preparing and filing of property tax bills on behalf of their clients by the assessee - held that - Sec 65 (19) of the Act defines business auxiliary service and excludes information technology service which is defined in the explanation to the said Section as any service in relation to designing, developing or maintaining of computer software, or computerised data processing or system networking, or any other service primarily in relation to operation of computer systems. The CBEC in its circular No.59/8/2003 dated 20-06-2003 clarified that only if the output service provided by a service provider is in the nature of the above operations i.e. in relation to operation of computer systems, the exclusion of such output service from business auxiliary service would operate and that the mere fact that a personal computer or a laptop has been used for providing the service does not, ipso facto, make the service an information technology service . It directed that in such cases, individual service has to be examined with reference to the explanation provided in the definition of business auxiliary service and only such output services which qualify to be IT services in terms of the said explanation shall remain excluded from taxable service under the heading business auxiliary service . Com(A) and Tribunal have rightly held that the above activities even though performed by using computer programmes are not in relation to computer systems, that this is supported by the SOFTEX forms submitted by them to STPI wherein they have mentioned that they export services only and not software and they have declared their exports as others-Back Office Services . where a person is providing a service of analysis of case law/precedents by using software such as Manupatra or SCC online to another. In such a case, the service provider, merely because he is using a computer to provide the said service, cannot be said to be providing information technology service to the service receiver. The contention of the Revenue, if accepted, would require this Court to ignore the words primarily in relation to computer systems/programming in the explanation in Section 65 (19) of the Act. Such an interpretation cannot be given because it is settled principle of law that effort should be made to give meaning to each and every word used by the legislature in a statute and one cannot brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute as held in Aswini Kumar Ghose Vs. Arabinda Bose AIR 1952 SC 369, 377 para 26 - Revenue is not entitled to raise in this appeal, the contention that there is no nexus between the input service availed by the assessee and the output service provided by it as such a substantial question of law was not framed by it at the time of filing of the appeal and the appeal was not admitted to consider the said issue - Tribunal and the Commissioner (Appeals) have given valid reasons to reject the said contention - no merit in the appeal and therefore the appeal is dismissed. No costs.

Summary

Issues Involved:
1. Classification of services provided by the assessee.
2. Eligibility for input service credit.
3. Applicability of Rule 5 of the Cenvat Credit Rules, 2004 to refunds.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Assessee:
The core issue was whether the services provided by the assessee to M/s. Deloitte Tax LLP, USA, such as preparation of tax returns and data processing, fell under "Business Auxiliary Service" or "Information Technology Service" as defined under Section 65 (19) of the Finance Act, 1994. The Tribunal and Commissioner (Appeals) concluded that the services provided by the assessee were not in relation to designing, developing, or maintaining computer software or computerized data processing, and thus did not fall under "Information Technology Service." They emphasized that the services were primarily back-office support, which aligns with "Business Auxiliary Service." The Tribunal also noted that using computers for providing services does not automatically classify them as "Information Technology Service."

2. Eligibility for Input Service Credit:
The Commissioner initially denied the assessee's claim for input service credit, arguing that the services provided were non-taxable and did not have a direct nexus with the output services. However, the Commissioner (Appeals) and the Tribunal disagreed, stating that the definition of "input service" under Rule 2 (L) of the Cenvat Credit Rules, 2004, includes services used in relation to the business of providing output services. They held that the input services availed by the assessee, such as equipment hiring and professional consultation, were necessary for providing the output services and thus eligible for input service credit.

3. Applicability of Rule 5 of the Cenvat Credit Rules, 2004 to Refunds:
The Revenue contended that the amendment to Rule 5 on 14-03-2006 should not apply to refunds for exports made prior to that date. The Tribunal, however, upheld the assessee's entitlement to the refund, stating that the amendment allows for such refunds and the services provided by the assessee were taxable under "Business Auxiliary Service," making them eligible for input service credit and consequent refund.

Conclusion:
The High Court dismissed the appeal, supporting the Tribunal's and Commissioner (Appeals)'s findings that the services provided by the assessee were "Business Auxiliary Services" and not "Information Technology Services." The Court also upheld the eligibility for input service credit and the applicability of the amended Rule 5 for refunds. The Court emphasized that issues of service classification and nexus between input and output services cannot be revisited under Section 35-G of the Central Excise Act, 1944.