2022 (3) TMI 192 - AT - Service Tax

Refund of service tax paid - input services - denial of refund on the ground that those services had no nexus wth the output service exported by the appellant - HELD THAT - Sub-rule(1) of Rule 3 of the Cenvat Credit Rules, 2004 is the enabling provision, which entitles a manufacturer or service provider to take cenvat credit of various duties and taxes itemized therein. Similarly, sub-rule (4) of Rule 3 ibid permits a manufacturer or service provider to utilize the cenvat credit so availed, for payment towards various activities including payment of duty on excisable final product and service tax on the output service. Where the credit availed or utilized in a wrongful manner, it has been mandated in Rule 14 ibid for recovery of the credit so availed/utilized from the manufacturer or service provider as the case may be. It has further been mandated that for effecting recovery of irregularly availed or utilized cenvat credit, the provisions of Section11A of the Central Excise Act, 1994 or Section 73 of the Finance Act, 1994, as the case may be, shall apply mutatis mutandis - since Rule 5 ibid itself is a self contained provision, designed with the sole objective of consideration of the refund application for the limited purpose of exportation of goods/services, the department is only confined to look into the aspect, whether the formula prescribed there under has been duly complied with by the claimant or not. The reasons assigned by the authorities below in this case for denial of the refund benefit to the applicant shall not stand for judicial scrutiny inasmuch as other than the allegation of non-establishment of nexus, the department had never questioned nor pointed out any discrepancy, alleging that the ingredients mentioned in Rule 5 ibid have not been complied with by the appellant. Hence, refund benefit shall not be denied to the appellant. It is found that entirely on the identical set of facts, this Tribunal in the case of WARBURG PINCUS INDIA PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX-I, MUMBAI 2018 (4) TMI 482 - CESTAT MUMBAI has allowed the refund benefit to the exporter of service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of refund of service tax paid on input services due to alleged lack of nexus with the output service exported.
2. Validity of invoking Rule 14 for denial of Cenvat Credit without issuance of show cause notice.
3. Interpretation of Rule 5 of the Cenvat Credit Rules, 2004 in the context of refund application for exported services.
4. Comparison of judicial precedents cited by both parties regarding eligibility of Cenvat Credit and refund benefits.

Analysis:
1. The case involved the denial of refund of service tax paid on input services by the appellant due to the alleged lack of nexus with the output service exported. The original authority had granted refund for some input services but denied it for others based on this ground. The Commissioner (Appeals) upheld the denial, leading to the appellant's appeal before the Tribunal.

2. The appellant argued that since no show cause notice was issued under Rule 14, the department's rejection of the refund application on the nexus ground was unjustified. Citing the Warburg Pincus case, the appellant contended that the refund benefit cannot be denied solely based on nexus establishment. On the contrary, the respondent-department justified the denial, claiming that the disputed services lacked nexus with the exported output service and that show cause proceedings were initiated for further denial.

3. The Tribunal analyzed the statutory provisions, emphasizing Rule 5 of the Cenvat Credit Rules, 2004, which governs the grant of refund for exported goods/services. It noted that Rule 5 is a self-contained provision focusing on compliance with prescribed procedures for exportation, without mandating an examination of nexus under Rule 3 or Rule 14. The Tribunal found that the department's denial based solely on nexus without questioning Rule 5 compliance was unjustified, leading to the allowance of the appeal.

4. The Tribunal distinguished the judicial precedents cited by the Revenue, highlighting that those cases focused on the eligibility of Cenvat Credit for various services, not specifically on exportation of output services and refund benefits. In contrast, the present case centered on the refund claim for exported services, making the cited judgments inapplicable to the current scenario. By referencing the Warburg Pincus case, the Tribunal supported its decision to grant the refund benefit to the appellant based on the direct use of input services for providing output services.

In conclusion, the Tribunal set aside the Commissioner (Appeals)'s order, allowing the appeal in favor of the appellant and emphasizing the importance of compliance with Rule 5 for refund applications related to exported services.