2017 (5) TMI 565 - AT - Service Tax

Refund claim - denial on account of nexus - Held that - The Rule 5 of CCR, 2004 has under gone an amendment as noted by the Commissioner (Appeals). The word used in the said provision earlier to 01.04.2012 has been deleted - reliance was also placed in the case of M/s Xilinx India Technology Services Pvt. Ltd. Versus The Commissioner. C.C. E&ST, Hyderabad-IV 2016 (7) TMI 598 - CESTAT HYDERABAD - refund allowed - appeal dismissed - decided against Revenue.

Summary

Issues: Department's appeal against refund claim sanctioned by Commissioner (Appeals) under Rule 5 of CENVAT Credit Rules, 2004.

Analysis:
1. Nexus between input services and output services:
The Department contended that the Commissioner (Appeals) erred by not scrutinizing whether there was a nexus between the input services and the output services provided by the assessee. The Department argued that it is essential for the adjudicating authority to establish this connection. However, the Commissioner (Appeals) noted that post the amendment in Rule 5 of CENVAT Credit Rules, 2004 effective from 01.04.2012, the requirement to establish the nexus was eliminated. The Commissioner (Appeals) allowed the refund claim based on this change, emphasizing that the denial of credit/refund solely on the grounds of lack of nexus without considering the usage and the appellant's claims is legally incorrect.

2. Amendment in Rule 5 of CENVAT Credit Rules, 2004:
The Commissioner (Appeals) highlighted the significant amendment in Rule 5 of CENVAT Credit Rules, 2004, where the word 'used' was deleted post 01.04.2012. This deletion was crucial in the decision to allow the refund claim without the requirement of establishing a direct link between input and output services. The Commissioner (Appeals) correctly relied on precedents like the judgments in Xilinx India Technology Services Pvt. Ltd. and M/s Reliance Industries Ltd. to support the decision to grant the refund of disputed input services.

3. Judicial scrutiny and findings:
The Commissioner (Appeals) thoroughly analyzed the documents and submissions related to the case, considering the material period from October 2013 to March 2014. The Commissioner (Appeals) referred to Notification No. 18/2012-CE (NT) dated 17.03.2012, which eliminated the necessity of correlating input services with output services for refund claims. The Commissioner (Appeals) criticized the lower authority for rejecting the credit without proper discussion or consideration of the appellant's contentions. The Commissioner (Appeals) emphasized the importance of passing a speaking order and following due process before denying credit or refunds, as prescribed under the CENVAT Credit Rules.

4. Final Decision:
After hearing all submissions, the Member (Judicial) concluded that the Department's appeal lacked merit. The Member (Judicial) upheld the Commissioner (Appeals)'s decision to dismiss the appeals, citing the amended Rule 5 of CENVAT Credit Rules, 2004 and the legal precedents supporting the allowance of refund claims without the need to establish a direct nexus between input and output services. The judgment was pronounced in open court, confirming the dismissal of the appeals.