2022 (5) TMI 1396 - AT - Service Tax

Refund of service tax aid on input services - export of taxable output services - Whether the Onsite services provided by subsidiary or branch of the Appellant located outside India can be treated as Export of Services and turnover thereof can be included in the Export Turnover of the Appellant under Rule 5 of the CCR? - HELD THAT - The subsidiaries/ branch offices did not raised any bill/ invoice on the recipient of the services or received any payments from them. All the services provided by the appellant to their overseas client have been provided under umbrella of a single contract. The subsidiaries/ branch offices of the appellants located overseas do not provide any service to the clients of the appellant independently. No such contractual agreement exists between the subsidiaries/ branch offices of the appellant with the service recipient. The subsidiaries/ branch offices provide the said services to the appellant and raise bill for the same on appellant for which the appellant are also discharging the service tax on reverse charge basis treating them as import of services. Thus these services are input services to the appellant for providing the services to their client overseas. Whether CENVAT credit has been correctly disallowed by the Ld. Respondent in respect of various input services procured domestically? - HELD THAT - The case of revenue is that the Commissioner (Appeal) has erred while determining the total turnover by deducting the value of onsite services provided by the overseas subsidiaries / branches directly to their clients, which do not qualify as export of services from the value of total turnover. The stand is itself erroneous, the said services which were not provided by the appellants cannot be treated as part of total turnover of the Appellant and the hence the order of Commissioner (Appeal) cannot be faulted on this account. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Whether the onsite services provided by the subsidiary or branch of the appellant located outside India can be treated as "Export of Services" and turnover thereof can be included in the Export Turnover of the appellant under Rule 5 of the CENVAT Credit Rules (CCR).
2. Whether CENVAT credit has been correctly disallowed by the respondent in respect of various input services procured domestically.
3. Imposition of interest on erroneous refund granted to the appellant.

Detailed Analysis:

1. Onsite Services as Export of Services:
The primary issue was whether the onsite services provided by the appellant's subsidiaries or branches located outside India can be considered as "Export of Services" under Rule 5 of the CENVAT Credit Rules, 2004. The appellant argued that these services should be included in their export turnover since they entered into contracts with overseas clients and received payment in convertible foreign exchange. The Commissioner (Appeals) found that the appellant had fulfilled all six conditions of Rule 6A of the Service Tax Rules, 1994, including the receipt of payment in convertible foreign exchange and the location of the service provider within the taxable territory. The Tribunal upheld this view for Model-I, where the appellant directly contracted with overseas clients and received payments, treating the onsite services as part of the export turnover.

However, for Model-II, where the subsidiary directly contracted with the overseas client and provided onsite services, the Tribunal found that these services could not be considered as exported by the appellant. The subsidiary was deemed the main contractor and the appellant a sub-contractor, receiving payment from the subsidiary rather than the overseas client. Therefore, the value of these onsite services was excluded from the export turnover and total turnover of the appellant.

2. Disallowance of CENVAT Credit:
The Tribunal also addressed the issue of disallowance of CENVAT credit for various input services such as those used for personal use of employees, rent-a-cab, telecommunication services, general insurance, outdoor catering, accommodation, restaurant, laundry, guest house, and event management services. The original authority had disallowed these credits, considering them unrelated to the services exported. The Tribunal upheld the original authority's decision, agreeing that these services did not have a direct nexus with the export activity and thus were not eligible for CENVAT credit.

3. Imposition of Interest on Erroneous Refund:
The appellant challenged the imposition of interest on the erroneous refund granted to them under Section 11AA. The Tribunal noted that the erroneous refund arose due to earlier decisions by the CESTAT and the Bombay High Court for the period before the 2010 amendments. The Tribunal found that the adjudicating authority had not considered whether the amount, if not refunded, would have been available in the CENVAT Credit account for use in domestic service tax payments. Therefore, the Tribunal remanded this issue back to the original authority for reconsideration, directing a fresh decision within three months.

Conclusion:
The Tribunal dismissed the appeals filed by the revenue, upholding the inclusion of onsite services in the export turnover for Model-I but excluding them for Model-II. The disallowance of CENVAT credit for specific input services was upheld. The matter of interest on the erroneous refund was remanded back to the original authority for reconsideration.

← Previous Next →