2013 (2) TMI 385 - HC - Service Tax

Rebate claim of service tax - whether the filing of the declaration in terms of notification No.12/2005 dated 19.04.2005 on 05.02.2007, after the date of the export of the services amounted to non-compliance with the condition disentitling the appellant from the rebate claims? - assessee rendering of IT-enabled services - Held that - There is a good deal of force in what the appellant says as any condition imposed by the notification must be capable of being complied with. If it is impossible of compliance, then there is no purpose behind it. The appellant is in the business of rendering IT-enabled services such as technical support services, customer-care services, back-office services etc. which are considered to be business auxillary services under the Finance Act, 1994 for the purpose of levy of service tax. The nature of the services is such that they are rendered on a continuous basis without any commencement or terminal points, it is a seamless service involving attending to cross-border telephone calls in respect of the products or services of multinational corporations. The appellant s unit in Okhla is one of those places which are popularly known as Call Centres business process outsourcing (BPO) centres. The mainstay of the call centres is a sophisticated computer system and a technically strong and sophisticated international telephone network. Thus the very bedrock of the business is the attending of calls and given that they are received on a continuous basis, it difficult to conceive of any possibility as to how the appellant could not only determine the date of export but also anticipate the call so that the declaration could be filed prior to the date of export. In addition to this practically impossible situation, the appellant is also required by the procedure laid out in the notification to describe, value and specify the amount of service tax and cess payable on input services actually required to be used in providing taxable service to be exported. With the possible exception of the description, unable to appreciate how the service-exporter will be in a position to value and specify the amount of service tax/cess payable on the input services actually required to be used in providing the exported service. An estimate is ruled out by the use of the word actually required , and unless what was actually required is known, it is impossible to value and specify the amount of service tax or cess payable on the input services. That will be known only when the bill or invoice for the input-services is received by the appellant. The bill or invoice is received after the calls are attended to. Thus, it seems that in the very nature of things, and considering the peculiar features of the appellant s business, it is difficult to comply with the requirement prior to the date of the export. Thus having regard to the nature of the business and its peculiar features which are not in dispute the description, value and the amount of service tax and cess payable on input-services actually required to be used in providing the taxable service to be exported are not determinable prior to the date of export but are determinable only after the export and if, further, such particulars are furnished to the service tax authorities within a reasonable time along with the necessary documentary evidence so that their accuracy and genuineness may be examined, and if those particulars are not found to be incorrect or false or unauthenticated or unsupported by documentary evidence, it cannot be said that the object and purpose of the requirement stand frustrated. In the present case, no irregularity or inaccuracy or falsity in the figures furnished by the appellant both on 05.02.2007 and in the rebate claims has been alleged. Moreover, it appears somewhat strange that none of the authorities below has demonstrated as to how the appellant could have complied with the requirement prior to the date of the export of the IT-enabled services - Thus allow the appeal and direct the respondents to allow the rebate claims - in favour of assessee.

Issues Involved:
1. Compliance with Notification No.12/2005-ST dated 19.04.2005
2. Filing of declaration prior to export of taxable services
3. Procedural vs. substantive requirements for rebate claims
4. Practical difficulties in compliance due to nature of business

Detailed Analysis:

1. Compliance with Notification No.12/2005-ST dated 19.04.2005:
The appellant, engaged in IT-enabled services, filed rebate claims for service tax paid on input services. The claims were rejected by the Deputy Commissioner, Service Tax, and upheld by the Commissioner of Central Excise (Appeals) on the grounds of non-compliance with the procedural requirements of Notification No.12/2005-ST. Specifically, the appellant had not filed the required declaration prior to the date of export of taxable services.

2. Filing of Declaration Prior to Export of Taxable Services:
The appellant argued that due to the continuous nature of their services, it was practically impossible to file the declaration prior to the export. They contended that the details required in the declaration could only be accurately provided in the rebate claim forms filed post-export. The lower authorities, including the CESTAT, maintained that the procedural requirement was essential to prevent tax evasion and ensure proper audit checks.

3. Procedural vs. Substantive Requirements for Rebate Claims:
The core issue was whether the procedural requirement of filing the declaration prior to export was mandatory or could be considered directory given the practical difficulties. The Tribunal remanded the matter back to the original adjudicating authority to verify if the appellant had filed the required declarations, albeit with delays, and whether such delays could be condoned based on the precedent set in the Convergys India Pvt. Ltd. case.

4. Practical Difficulties in Compliance Due to Nature of Business:
The High Court acknowledged the unique nature of the appellant's business, which involved continuous and seamless export of services. It noted the practical impossibility of determining the exact date of export and the specifics of input services used before actual export. The Court emphasized that any condition must be capable of compliance and, in this case, the requirement of filing a declaration prior to export was not feasible. The Court found merit in the appellant's argument that the details provided post-export in the rebate claims were more accurate and verifiable.

Judgment:
The High Court allowed the appeal, directing the respondents to allow the rebate claims. The Court clarified that its decision was based on the specific facts and nature of the appellant's business, without addressing the broader question of whether the procedural requirement was mandatory or directory. The Court emphasized that no irregularity or inaccuracy was found in the appellant's rebate claims and that the procedural requirement, in this case, was practically impossible to comply with.

Conclusion:
The High Court's judgment underscores the importance of considering practical difficulties in compliance with procedural requirements, especially in cases involving continuous services. It highlights the need for flexibility in interpreting procedural conditions to ensure they do not become impossible to comply with, thereby frustrating the purpose of the law.

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