2012 (12) TMI 581 - AT - Service Tax

Refund claim - Cenvat Credit on Service Tax distributed by the Head Office - Denial as Head Office was not registered as Input service distributor - Held that - Requirement for registration came only in 2006 and prior to this there was no such requirement. Therefore, what is required to be seen is whether the input service in respect of which the credit is taken is required for providing the output service and has nexus with the rendering of the output service. If the nexus can be established, the appellant would be rightly entitled for the credit of the service tax paid thereon. Service tax paid on leased telecom lines - denial of Refund claim - Held that - Appellants are rightly entitled for Service tax credit and refund thereon for the reason that the exports are undertaken electronically and to undertake this export they need dedicated lines from their office premises to the telecom authorities, who will receive the data for transmitting the same abroad. Without these dedicated lines, the appellant cannot deliver the output service and, therefore, leasing of telecom lines by the telecom authorities is an eligible input service as defined in Rule 2(l) of the CENVAT Credit Rules, 2004. No export of Output Service - Held that - The view adopted by Revenue that appellant has not exported the output service because the service was transmitted through telecom service providers in India is completely irrational as when data is transmitted through electronic medium, it has to be first transmitted to a server of the telecom authorities in India and thereafter uplinked/transmitted to the foreign service recipient - foreign service recipient has received the output service and has made payment in convertible foreign exchange to the appellant towards the services received, payment has been received by the Head Office of the appellant unit in Bombay whereas they are situated in Nashik and the appellant needs to produce evidence to show that the payments which were received in convertible foreign exchange in Bombay related to the exports made by the units at Nashik - remand the matter to the original adjudicating authority subject to verification of these facts through documentary evidence to consider the refund claim of the appellant - in favour of assessee by way of remand.

Summary

Issues:
Appeal against rejection of refund claims for Business Auxiliary Services provided by a 100% EOU, denial of CENVAT credit on distributed service tax by Head Office, rejection of refund claim for directly availed services, dispute over export definition due to routing through Indian telecom authorities.

Analysis:
The appellant, a 100% EOU providing Business Auxiliary Services, filed refund claims for two units in Nashik. The claims were rejected citing reasons like distributed CENVAT credit by Head Office without registration, denial of credit for directly availed services, and dispute over export definition due to routing through Indian telecom authorities. The appellant argued that pre-2006, no registration was required for Head Office as input service distributor, making denial of credit on this ground unsustainable. Regarding directly received services, the appellant contended that leased telecom lines used for exporting output service are eligible input services. The appellant claimed that exporting data electronically to foreign recipients in exchange for payments qualifies as export. The Revenue authorities reiterated the lower findings.

The Tribunal analyzed the submissions and ruled in favor of the appellant on various grounds. Firstly, it held that the leased telecom lines used for electronic exports qualify as eligible input services under CENVAT Credit Rules. Secondly, it noted that denial of CENVAT credit on services distributed by the Head Office due to lack of registration was invalid pre-2006. The Tribunal emphasized that the nexus between input services and output services is crucial for credit eligibility. Lastly, the Tribunal dismissed the Revenue's argument on export definition, stating that electronic transmission through Indian telecom authorities does not negate the export nature of the service. However, it required the appellant to provide evidence linking foreign exchange payments received in Bombay to exports from Nashik units for refund eligibility. Consequently, the matter was remanded to the adjudicating authority for further consideration based on the directions provided.

In conclusion, the appeals were allowed by way of remand, granting the appellant an opportunity to substantiate their refund claims with necessary evidence.