2025 (3) TMI 844 - AT - Service Tax

100% Software EOU - CENVAT Credit of the accumulated crredit - Management of Business Consultancy Service - Management Maintenance and Repair Service - Information Technology Software Service (ITSS) (June 2008 onwards) - Management Consultancy Service (June 2008 onwards) - reverse charge mechanism in terms of Section 66A of the Finance Act 1994 in respect of the services received from M/s. Texas Instruments Inc. USA - Extended period of limitation - HELD THAT - Undisputed facts are that the appellant is a 100% EOU registered under the STPI scheme and during the relevant period pursuant to the agreement entered into with the overseas companies viz. M/s. Texas Instruments Inc. USA and M/s. Texas Instruments Singapore they have exported software services and rendered services to the overseas companies. Since there was no clearance to the domestic market and entire services were exported the appellant had filed cash refund claims of accumulated cenvat credit of Rs.14, 06, 03, 251/- on quarterly basis during the period April 2007 to May 2008. Under Rule 5 of Cenvat Credit Rules 2004 Initially the said refund claims were rejected on the ground that the output services provided by them became taxable only w.e.f. 16.05.2008; hence the cenvat credit availed itself is inadmissible. The matter has reached this Tribunal and this Tribunal following the ratio laid down in the case of mPortal India Wireless Solutions 2011 (9) TMI 450 - KARNATAKA HIGH COURT remanded the matter to the adjudicating authority for de novo consideration. In the de novo proceeding the adjudicating authority allowed the cash refund claims for the period April 2007 to May 2008. Conclusion - The rejection of refund claims on the basis of non-taxability of output services is unsustainable when subsequent legal and administrative actions have sanctioned such claims. The impugned order is set aside and the appeal is allowed with consequential relief if any as per law.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue in this appeal was whether the cenvat credit amounting to Rs.14,06,03,251/- availed by the appellant from April 2007 to May 2008 was recoverable under the Cenvat Credit Rules, 2004. The core legal question revolved around the eligibility of the appellant to claim cenvat credit for services that were not taxable during the relevant period but were later sanctioned for refund by the Department.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The appellant, a 100% Software Export Oriented Unit (EOU), was registered under the Software Technology Park scheme. During the period in question, they discharged service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994, and availed cenvat credit for input services. The dispute arose from the interpretation of the Cenvat Credit Rules, 2004, particularly Rule 5, which pertains to the refund of accumulated credit in cases where goods or services are exported.

Legal precedents cited included the Karnataka High Court's decision in mPortal India Wireless Solutions Vs. CST, Bangalore, which was pivotal in determining the eligibility of credit for services considered non-taxable during the relevant period.

Court's Interpretation and Reasoning

The Tribunal examined whether the appellant's claim for cenvat credit was legitimate given that the services were not taxable prior to 16.05.2008. The Tribunal relied on its previous order and the Karnataka High Court's ruling in mPortal India Wireless Solutions, which established that the rejection of refund claims on the basis that the output services were not taxable was unsustainable. The Tribunal noted that the adjudicating authority, in a de novo proceeding, had sanctioned the refund claims, effectively settling the issue in the appellant's favor.

Key Evidence and Findings

The appellant had filed refund claims on a quarterly basis for the period April 2007 to May 2008. Initially, these claims were rejected by the Department on the grounds that the output services were not taxable. However, the Tribunal had previously remanded the matter for reconsideration, and the adjudicating authority subsequently allowed the cash refund claims, acknowledging the legitimacy of the appellant's credit claims.

Application of Law to Facts

The Tribunal applied the legal principles established in the mPortal India Wireless Solutions case to the facts of the appellant's situation. It concluded that since the refund claims had been sanctioned and the issue of credit eligibility had been resolved in favor of the appellant, the demand for recovery of the cenvat credit was unsustainable.

Treatment of Competing Arguments

The Tribunal considered the Department's initial stance that the credit was inadmissible due to the non-taxable status of the services during the relevant period. However, it found that this argument was outweighed by the subsequent sanctioning of the refund claims and the legal precedent set by the Karnataka High Court. The Tribunal also addressed the issue of the extended period of limitation, noting that the appellant had consistently filed refund claims, thereby keeping the Department informed of all relevant facts.

Conclusions

The Tribunal concluded that the demand for recovery of the cenvat credit was not sustainable given the sanctioning of the refund claims and the legal precedent supporting the appellant's position. The appeal was allowed, and the impugned order was set aside with consequential relief as per law.

SIGNIFICANT HOLDINGS

The Tribunal's decision reinforced the principle that the rejection of refund claims on the basis of non-taxability of output services is unsustainable when subsequent legal and administrative actions have sanctioned such claims. The ruling emphasized the importance of adhering to established legal precedents and the necessity of consistent administrative actions.

"In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law."

The Tribunal's decision underscored the importance of consistency in the application of tax laws and the recognition of legitimate claims for cenvat credit, even when services were not initially taxable.