2016 (3) TMI 203 - AT - Service Tax

Refund of Cenvat credit under Rule 5 of Cenvat Credit Rules 2004 read with notification No. 5/2006-CX(NT) - Inclusion of services in the definition of input services - Appellant is BPO Outfit providing Health Club and Fitness Center, Transport Goods by Road and Electricity Expenses services to its client but commissioner disallowed the Cenvat Credit in respect these services on the ground of not falling under the definition of input service and not having nexus with the export of service - Held that In the BPO services the major involvement is manpower who are required to perform their duties on 24x7 basis when the manpower work in odd times during the 24 hours it adversely affects the health of the employee which directly affects the performance of the services. So, in the BPO companies the health and fitness of the employees is very essential factor in order to run the function of a BPO company. Therefore, health and fitness services availed by the company for their employee is a necessity for providing the better quality of output service and included in the definition of input services. The transportation was used for the various activities of the appellant such as transportation of equipment like computers etc. and there is no evidence available as per show cause notice that transport service was used for transporting the household goods of employees. Therefore, these services are input services even as per the inclusion clause of the definition of input service. When the premises was occupied by the appellant and day-to-day repairs and maintenance are carried out in that premises then obviously, the said services are received and used by the tenant only i.e. the appellant and not by the landlord. The services like repair, maintenance, electricity are directly used by the BPO service provider in order to carry out their day-to-day business activity. Therefore, included in the definition of input services. As all the three services are input services, the Cenvat credit is allowed and are entitled for the refund of Service tax. - Decided in favour of appellant

Summary

Issues:
- Disallowance of Cenvat Credit for certain services in refund claims
- Allegation of lack of nexus with the export of services
- Interpretation of definition of input service
- Applicability of penalty under Section 80 of the Finance Act, 1994

Analysis:
1. Disallowed Cenvat Credit: The appellant, engaged in various services, filed refund claims for accumulated Cenvat Credit under Rule 5 of Cenvat Credit Rules 2004. The Commissioner disallowed credit for services like Health Club and Fitness Center, Transport Goods by Road, and Electricity Expenses, citing lack of nexus with export services. The appellant challenged this disallowance in the appeal.

2. Nexus with Export Services: The appellant argued that the services in question were essential for providing output services, referencing CBEC Circulars and judgments supporting the inclusion of such services as input services. They contended that the services were directly used for business activities, making them eligible for Cenvat Credit.

3. Interpretation of Input Service: The appellant emphasized that the services were used solely for providing output services, meeting the criteria of "activities relating to business" as per the definition of input service. They highlighted judgments supporting their stance and pointed out that the services were consumed before the exclusion clause came into effect.

4. Penalty Consideration: Regarding penalty imposition under Section 80 of the Finance Act, 1994, the appellant argued against mala fide intention, citing the interpretation of the definition of input service by various High Courts in similar cases. They contended that penalties should not be imposed in such circumstances.

5. Judicial Analysis: The Member analyzed the submissions from both sides, emphasizing the necessity of services like Health and Fitness for BPO operations. The Member noted that the services were essential for employee well-being, directly impacting service quality. Transport services for equipment and electricity expenses for premises maintenance were deemed as input services crucial for business activities, contrary to the Revenue's arguments.

6. Decision: The Member found that all three services were integral to the appellant's business activities and allowed the appeal, modifying the impugned order. The adjudicating authority was directed to process the refund claim accordingly, acknowledging the eligibility of the appellant for Cenvat Credit and service tax refund for the exported services.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal interpretations, and the final decision in favor of the appellant.