2022 (6) TMI 42 - AT - Service Tax

Refund of accumulated credit of tax - Tax paid on input service deployed in rendering output service - export of output service - period between October 2015 and March 2017 - N/N. 27/2012-CE (NT) dated 30th June 2012 - HELD THAT - The recovery proceedings under, and in accordance with, rule 14 of CENVAT Credit Rules, 2004 is the sole authority for denial of credit that has been wrongly availed and such proceedings have nothing to do with export of goods or services. This is demonstrably clear from the general provisions of rule 3 and rule 14 of CENVAT Credit Rules, 2004 and the self-contained re-determination envisaged in rule 6 of the said Rules that can be enforced, once again and by specific provisioning, through rule 14 of CENVAT Credit Rules, 2004. Rule 5 of CENVAT Credit Rules, 2004 does not provide for such recovery of non-monetized credit; on the contrary, denial of refund concurrently retains credit to that extent. Admittedly, this issue had not been raised in the proceedings before the first appellant authority. The outcome of the proceedings before the first appellate authority may well have been impacted by this proposition, along with the binding decisions, now put forth before the Tribunal. Furthermore, appellant also now claims to be in possession of documentation that could negate the denial of refund claim. Revenue has no dispute over any portion of the refund sanctioned by the lower authorities - the Tribunal has been deprived of the wisdom and domain expertise of the first appellate authority insofar as the impugned order is concerned. A fresh determination of the grounds of appeal, including the ones in the appeals now being disposed off, pertaining to the denial of refund, and bar on re-credit, of ₹ 19,73,306, is the appropriate course of action. To enable this, the matter is remanded back to the first appellant authority to ascertain applicability of the decisions of Tribunal to the consequences determined by the original authority of such portion of the claim for which documentary evidence prescribed in notification no. 27/2012-CE (NT) dated 30th June 2012 is presented - appeal allowed by way of remand.

Summary

Issues:
Challenging denial of part of three claims for refund of accumulated credit of tax on 'input service' used in exporting 'output service' between October 2015 and March 2017. Interpretation of rule 5 of CENVAT Credit Rules, 2004 regarding disaggregation of data and truncation of claims. Disallowance of credit and entitlement to re-credit. Authority for denial of credit wrongly availed. Impact of binding decisions on denial of refund claims. Possession of supportive documentation impacting refund denial. Remand for fresh determination of grounds of appeal.

Analysis:

Issue 1: Challenging Denial of Refund Claims
The appeals contested the denial of part of three refund claims for tax credit on 'input service' utilized in exporting 'output service' between October 2015 and March 2017. The claims were partially sanctioned by the competent authority, with a denial of ?73,88,288 and disallowance of re-credit, except for ?19,73,306. The denial also imposed a bar on re-credit, leading to the current proceedings before the Tribunal.

Issue 2: Interpretation of Rule 5 of CENVAT Credit Rules, 2004
The appellant argued that rule 5 of CENVAT Credit Rules, 2004 does not allow disaggregation of data or truncation of claims beyond the prescribed formula. The denial of monetization under this rule should not impact the already availed credit, as the show cause notice only proposed denial of monetization without recovery of credit. The absence of any proposal for recovery limited the framework of the dispute.

Issue 3: Disallowance of Credit and Entitlement to Re-Credit
The scheme aims to eliminate the cascading effect of taxation by allowing credit accumulation for exporters. Disallowance of credit for monetization is subject to specific procedures, and denial of refund retains the credit. The denial for nonproduction of documents was contested, as the deficiency was rectified, enabling a rebuttal of the denial based on the time limitation.

Issue 4: Authority for Denial of Credit Wrongly Availed
The Tribunal emphasized that recovery proceedings under rule 14 of CENVAT Credit Rules, 2004 are the sole authority for denial of wrongly availed credit, unrelated to export of goods or services. Rule 5 does not provide for recovery of non-monetized credit, and denial of refund concurrently retains the credit.

Issue 5: Impact of Binding Decisions on Denial of Refund Claims
The appellant referenced Tribunal decisions to support the settlement of disallowance of credit while disposing of refund claims. The Tribunal's consideration of these decisions influenced the remand for fresh determination of the grounds of appeal, including the denial of refund and bar on re-credit of ?19,73,306.

Issue 6: Possession of Supportive Documentation Impacting Refund Denial
The availability of supportive documentation, which could negate the denial of the refund claim, was highlighted. The absence of this documentation during the initial proceedings deprived the Tribunal of the first appellate authority's expertise, leading to the remand for reassessment based on the presented evidence.

In conclusion, the Tribunal allowed the appeals by remanding the matter back to the first appellant authority for a fresh determination considering the applicable decisions and presented documentation to address the denial of refund claims and the bar on re-credit.