2024 (1) TMI 396 - AT - Service Tax

100% EOU - refund of unutilized Cenvat credit - input services - quality and efficiency of the output service - nexus with output services - penalty under Rule 15 of CCR read with Sec 78 of Finance Act - HELD THAT - The Court below summarily rejected the contentions of the Appellant, observing that the absence of such input services would not adversely impact the quality and efficiency of the output service provided by the Appellant/Assessee. This amounts to interfering and/or dictating how the Assessee should do their business, which is not the spirit of law - it is further observed that Rule 2(l) of CCR provides input service means any service used by a provider of output service for providing an output service and includes services used in relation to renovation or repairs of the premises/factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, requirement of quality control, coaching and training, computer networking, etc. Thus, the definition provides for credit of both types of input services, the benefit of which is either received directly or indirectly. There is no such restriction in the definition under Rule 2(l) - the Order of the Court below is non-speaking and cryptic. Further, no penalty is exigible in the facts and circumstances as the issue is wholly interpretational. Accordingly, the penalty imposed and retained by the Court below under Rule 15 of CCR read with Sec 78 of the Act is set aside. Appeal allowed by remanding the matter back to the Original Adjudicating Authority to decide the SCN afresh, after considering the relevant Circular and the precedent decisions of various Courts as well as the explanations and clarifications provided by the Assessee.

Summary

Issues involved: Refund of unutilized Cenvat credit under Rule 5 of CCR, disallowance of Cenvat credit, recovery of interest, imposition of penalty, interpretation of "input services" under Rule 2(l) of CCR, rejection of submissions by Commissioner (Appeals), nexus between input services and output services, applicability of Board Circular No.120/01/2010-ST, penalty imposition under Rule 15 of CCR.

The Appellant, a 100% EOU providing Information Technology and Software Services, filed applications for refund of unutilized Cenvat credit. The Department issued a Show Cause Notice (SCN) seeking disallowance of Cenvat credit, recovery of interest, and imposition of penalty. The Additional Commissioner confirmed the disallowance of Cenvat credit on various expenses, leading to the demand for interest and penalty under Rule 15 of CCR.

The Appellant appealed before the Commissioner (Appeals) who rejected most submissions but reduced the penalty amount, noting the absence of suppression of facts. Grounds of appeal included improper interpretation of Act, Rules, and Circulars, failure to consider the wide meaning of "input services," and errors in classification and nexus determination by the ADC.

The Appellant contended that the input services in dispute were essential for their business of software development, primarily comprising export turnover. The rejection of input tax credit based on nexus theory was challenged, citing Board Circular No.120/01/2010-ST which emphasizes the impact on quality and efficiency of output services.

The Tribunal found the lower court's order non-speaking and cryptic, setting aside the penalty imposed. The matter was remanded back to the Original Adjudicating Authority for a fresh decision, considering relevant Circulars, precedent decisions, and the Assessee's explanations. The Appellant was directed to appear before the Adjudicating Authority with a copy of the Tribunal's Order for a hearing.

Separate Judgment by the Tribunal: The Tribunal allowed the Appeal by way of remand, emphasizing the need for a comprehensive reconsideration of the SCN in light of relevant guidelines and clarifications provided by the Assessee.