2017 (3) TMI 378 - AT - Service Tax

SEZ unit - Refund claim - denial on the ground that the appellant had taken CENVAT credit on input services - N/N. 17/2011-ST dated 01 .03.2011 - whether the appellants have fulfilled the condition 2(g) of the N/N. 17/2011-ST when they have taken the CENVAT credit and reversed the same before filing the refund claim? - Held that - reliance was placed in the case of Hello Minerals Water Pvt. Ltd., Vs. Union of India 2004 (7) TMI 98 - ALLAHABAD HIGH COURT , where it was held that reversal of Modvat credit amounts to non-taking of credit on the inputs. Hence the benefit has to be given of the notification granting exemption/rate of duty on the final product since the reversal of the credit on the input was done at the Tribunal s stage. The Ld. AR, has pointed out that in the case of SEZ the condition has to be complied being mandatory. However, the Ld. AR, has not been able to convince as to how the said condition which is similar in all the notifications discussed in the case laws would stand on a different footing. Rejection of refund is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund claim rejection based on violation of Notification No. 17/2011-ST condition 2(g) - SEZ unit taking CENVAT credit on specified services - Reversal of credit before filing refund claim.

Analysis:
The appellant, a SEZ unit providing Software development and Training services, obtained centralized registration for IT Software Services and Training. The appellant filed a refund claim for service tax paid on specified services in line with Notification No. 17/2011-ST. However, the claim was rejected as the appellant had initially taken CENVAT credit on specified services, which was later reversed along with interest. The appellant's refund claim for ?13,34,178/- for April-June 2012 was turned down by the adjudicating authority and Commissioner (Appeals) due to taking CENVAT credit on input services.

The appellant argued that despite initially availing CENVAT credit, they reversed it before filing the refund claim. The appellant contended that they had reversed the entire credit balance before submitting the claim. The appellant cited the case of CCE & Cus Vs. Precot Meridian Ltd. to support their position that reversal of CENVAT credit makes them eligible for a refund. Other judgments like Hello Minerals Water (P) Ltd. and CST Ahmedabad vs. Amola Holdings Pvt. Ltd. were also referenced to emphasize the validity of the refund claim.

On the contrary, the Respondent argued that the appellant violated the condition in Notification No. 17/2011-ST by taking CENVAT credit on specified services used in SEZ operations. The Respondent contended that even though the credit was reversed later, the violation of the notification's condition rendered the refund inadmissible. The Respondent highlighted that the appellant informed about credit reversal after filing the refund claim, indicating non-compliance with the notification's terms.

The Tribunal analyzed the issue of whether the appellant fulfilled condition 2(g) of Notification 17/2011-ST by taking and reversing CENVAT credit before the refund claim. Citing the case of Precot Meridian Ltd., the Tribunal noted that reversal of MODVAT credit could signify non-utilization, making the assessee eligible for exemption. The Tribunal found merit in the appellant's argument, supported by legal precedents, that reversal of credit equates to non-utilization, thus justifying the refund claim. The Tribunal held that the rejection of the refund was unwarranted, setting aside the impugned order and allowing the appeal with consequential reliefs.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the reversal of CENVAT credit before filing the refund claim aligned with the notification's requirements, entitling the appellant to the refund. The judgment underscored the principle that reversal of credit signifies non-utilization, supporting the appellant's claim for exemption and refund.