2021 (11) TMI 598 - AT - Service Tax

Refund of unutilized CENVAT credit accumulated - export of legal services, in terms of Rule 5 of CENVAT Credit Rules 2004 - period from July, 2012 to March, 2015 - HELD THAT - Only in the case of legal services provided by an individual Advocate or a Firm of Advocates to a business entity located in the taxable territory (emphasis supplied) the recipient is liable to pay the tax and consequently only those cases will fall outside the scope of output service . Legal services exported would fall within the scope of output service - Even otherwise, in the case of exports in general, the recipient of the service is not liable to pay the tax and hence export services would be output services provided they are not in the Negative List. Once it is established that the Appellants are providing output service they are entitled to take credit of input service. It is an admitted fact that credit proportionate to services provided within the taxable territory has been reversed. After such reversal remaining unutilized CENVAT Credit pertains only to export of legal services and becomes eligible for refund in terms of Rule 5 of CCR and Notification no. 27/2012-CE(NT) dated 18.06.2012 - The ld. Commissioner (Appeals) has also referred to Rule 6 of CCR to maintain his stand that when a service is exempt from tax input credit cannot be allowed. However, sub-section (7) of the said Rule specifically excludes export of services from the relevant provisions of the Rule which disallow input credit. The necessity or otherwise for the appellants to get themselves registered under the Act is not pertinent to the issue. It may however be noted that the appellants have shown sufficient reason for taking registration and the Department had not raised any objection against it or against taking input credit all these years during which returns had also been filed regularly. There is no merit in the impugned orders - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of the appellant firm for refund of unutilized CENVAT credit on account of export of legal services.
2. Applicability of Notification No. 30/2012-ST dated 20.06.2012.
3. Definition and scope of "output service" under Rule 2(p) of CENVAT Credit Rules, 2004.
4. Requirement of registration for availing CENVAT credit.
5. Applicability of Rule 6 of CENVAT Credit Rules, 2004 to export services.
6. Policy of non-export of taxes and relevant legal precedents.

Detailed Analysis:

1. Eligibility for Refund:
The appellant firm, a Partnership Law Firm specializing in Intellectual Property legal services, filed refund claims for unutilized CENVAT credit accumulated due to the export of legal services. The Adjudicating Authority initially sanctioned the refunds, but these were later reviewed and set aside by the Principal Commissioner, Service Tax, under Section 84(1) of the Finance Act 1994. The Commissioner (Appeals) upheld the rejection of subsequent refund claims for the period from July 2013 to March 2015. The Tribunal considered all appeals together as they involved common issues.

2. Applicability of Notification No. 30/2012-ST:
The Commissioner (Appeals) held that the appellant, as a provider of legal services, was not required to pay service tax under Notification No. 30/2012-ST, making them ineligible for refund. However, the appellant argued that this notification does not apply to the export of legal services, as the recipient located outside the taxable territory is not liable to pay service tax.

3. Definition and Scope of "Output Service":
The Commissioner (Appeals) contended that the appellant was not providing any taxable output service since the recipient of the legal service was liable to pay the tax. The appellant countered that the exclusion in Rule 2(p) of CENVAT Credit Rules, 2004, applies only to services provided to a business entity within the taxable territory. Export of legal services, therefore, qualifies as an "output service." The Tribunal agreed with the appellant, stating that legal services exported fall within the scope of "output service."

4. Requirement of Registration:
The Commissioner (Appeals) argued that the appellant was not liable to pay service tax and hence did not need registration. The appellant maintained that registration and availment of credit are separate issues. They were required to register for importing taxable services and paying tax on those imports. The Tribunal noted that registration is not pertinent to the issue of refund eligibility.

5. Applicability of Rule 6 of CENVAT Credit Rules, 2004:
The Commissioner (Appeals) held that input credit is not allowed for exempted services under Rule 6. The appellant argued that export services are not classified as exempted services under Rule 2(e) and are specifically excluded from Rule 6 by sub-section (7). The Tribunal affirmed that Rule 6 does not apply to export services, supporting the appellant's eligibility for refund.

6. Policy of Non-Export of Taxes and Legal Precedents:
The appellant cited several judgments supporting the principle that taxes should not be exported, and exporters should not be handicapped by input taxes. The Tribunal concurred, referencing judgments such as Mportal India Wireless Solutions Pvt. Ltd. vs. Commissioner of Services Tax and HSBC Software Development (India) Pvt. Ltd. vs. Commissioner of Services Tax, which upheld the eligibility for refund of unutilized CENVAT credit on exported services.

Conclusion:
The Tribunal concluded that the appellant firm is entitled to a refund of unutilized CENVAT credit on account of export of legal services. The orders of the Commissioner (Appeals) were set aside, and all five appeals were allowed with consequential relief in accordance with the law. The Tribunal emphasized the policy of the government that taxes should not be exported and upheld the well-settled legal principle supporting the appellant's case.