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TMI Blog2016 (2) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 18.02.2015 and No. 01-04/2015 dated 18.02.2015 and the remaining four appeals filed by the Revenue are arising out of one Order-in-Appeal No. No. 39-42/2011 dated 30.08.2011. 2. The brief facts of the case are that the Appellants are rendering software services and the services are exported and also to the domestic clients. The Appellant obtained centralized registration for service tax with the Commissioner of LTU, Chennai and also registered with STPI/SEZ as well. The Appellant claimed refund of CENVAT credit on the credit relating to input services used in the output services exported outside India under Rule 5 of CCR read with Notification No. 05/2006 dated 14 March 2006 as amended. 3. Appeal Nos. ST 278/2010 and ST 295/2011 are filed by the Appellant against the Order in Appeal No. 15/2010 and 06/2011. The original adjudicating authorities as well as the Commissioner (Appeals) in these cases rejected/restricted the refund claims of the Appellant on the grounds that: * Services related to development of information technology software and maintenance of such software were specifically included as taxable service only from 16.05.2008. * Appellant was engaged in provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89,88,41680,48,903 7,09,39,513 43 Jan-11 41021/2015 286/12 dt 31.08.12 3,58,78,087 1,18,02,667 2,40,75,420 44 Feb-11 41022/2015 398/12 dt 31.12.12 3,30,37,886 51,58,752 2,78,79,134 45 March 2011 41023/2015 399/12 dt 31.12.12 5,63,35,510 63,05,026 5,00,30,484 The adjudicating authority restricted the refund claim on the following grounds: * The export turnover portion in the formula prescribed under Rule 5 of CCR, does not include the value of exports made from SEZ. * that is, in the numerator the total export turnover the adjudicating authority taken only STPI turnover and excluded the SEZ exports and while taking the total turnover (denominator) the adjudicating authority has computed including SEZ exports and accordingly rejected the refund. * The adjudicating authority also excluded the quantum of amount from the refund claim which are otherwise ineligible for which separate show cause notices were issued under CCRs. Aggrieved by this, the appellant preferred appeal against that portion of the order, where their refund claim was rejected/restricted and the Commissioner (Appeals) in OIA No, 68 - 71/2013 dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the order of the Commissioner (Appeals) in OIA No. 1-4/2015 dated 18.02.2015, the appellants preferred appeals before this Tribunal in ST/41015/15 to 41018/2015. 6. The Ld. Advocate appearing on behalf of the appellants submitted a written synopsis in a tabular form of issues appeal-wise and reiterated the same. In respect of appeal No.s ST/278/10 and ST/295/11, he submits that the Revenue either restricted or rejected on the input service credit on the only ground that the software maintenance service was not taxable under Notification no. 5/06 prior to 16.05.2008. He drew the attention of the Bench to para - 16 of the adjudication order and submitted that the service provided by the appellants are taxable and further submitted that they have paid service tax on management, maintenance and or repair services. He submits that the payment of service tax on the MMRS is not under dispute and the same has been recorded at para 9 of the OIO No. 39 to 42/2011 dated 30.08.2011 and also submits that they have not claimed any input service credit on the services utilized under SEZ from April, 2007 to September and October to March 08. He drew attention to page 9 and page 49 of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover As far as CENVAT Credit is concerned, while the Appellant applied for refund of entire CENVAT Credit taken, the Department had restricted the same to the net eligible CENVAT Credit after deducting ineligible CENVAT Credit for which separate proceedings were initiated. 9. As regards Export turnover & Total turnover, it was submitted that they claimed the benefit of refund on export turnover of both SEZ & STPI units and that no CENVAT Credit was availed on services received by SEZ units since they were ab-initio exempt. However, for the purpose of turnover, the Appellant had adopted turnover of SEZ & STPI units, since Rule 5 of CENVAT Credit Rules is for entity as a whole and not for STPI/SEZ separately. They submitted that while applying the formula the lower adjudicating authority deducted the value of SEZ exports from the export turnover (i.e. numerator) but retained the same in the total turnover (i.e. denominator) thereby drastically reducing their refund claims. It was submitted that the Notification specifically mentions that the formula is to be applied only for the activity "to which the claim relates" and thus if the department wanted to adopt a stand that the SEZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT vs. M/s. Tata Elxsi Limited 2011 - TIOL - 684- HC- KAR- IT which in turn placed reliance on various judicial pronouncements and held that there should be uniformity in the ingredients of both numerator and denominator of the formula since otherwise it would produce anomalies or absurd results. Relying on the said precedents, it was submitted that if the department chose to exclude the SEZ turnover from numerator it also ought to have excluded the same from denominator. 13. Reliance was placed on the decision of the CESTAT Mumbai in the case of Commissioner of Central Excise , Pune III vs. M/s. Computer Land UK Limited 2015 (10) TMI 517, wherein it was held that if the Revenue wanted to reduce the value of invoices from Export turnover then the same should be removed from the total turnover. A paper book containing the provisions and case laws relied by him for the manner of applying the formula was submitted. 14. The learned authorized representative of the Revenue supported the findings made by the lower authorities in the impugned order in respect of Appeal No. 278/2010 and 295/2011 ( i.e. Sl. No. 31 & 32 of the causelist). She submitted that when softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts and therefore any interpretation leading to a reduction in the value of export should not be resorted. 16. He submitted that Rule 5 being a beneficial provision with an objective to grant refund of unutilized CENVAT Credit, the refund ought to have been granted in accordance with the claim made by the Appellant rather than restricting the same in a manner which is not the intention of the legislature. Further, it was also submitted that the Appellant did not avail of any CENVAT Credit pertaining to the SEZ operations and that is what is more critical since the refund that is granted is of CENVAT Credit and not that of turnover. 17. As regards, other precedents relied upon by Department representative, they submitted that the decisions pertain only to deemed exports of supplies made to SEZ and in the facts of the Appellant all the exports are physical exports from STPI/SEZ units to customers located outside India and hence the precedents relied upon by the Department in the context of deemed exports are irrelevant. 1. CIT Vs. M/s. Tata Elxsi Ltd.-2011 -TIOL-684-KAR-IT 2. CIT Vs. Gem Plus Jewellery India Ltd.-2011 (33) ITR P.175 (Bom.) 3. ITR Vs. Sak Soft Ltd.-2009 (3113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the Revenue cannot adopt two standards, when the appellant paid service tax under MMRS the same was accepted by the Revenue. Whereas, while claiming the refund under Rule 5 of CCR, the department choose to argue differently, stating that the said services are exempted. The issue of granting refund of unutilized input credit/input service tax credit used in the export of services under Rule 5 of CCR has been settled by various Honble High Courts and Tribunal. The decision of the Tribunal at Mumbai Bench in the case of KPIT Cummins Infosystems Ltd. Vs. CCE, Pune-I - 2013 -TIOL-931-CESTAT-MUM has dealt the identical issue on the software consultancy service exported during the relevant period and allowed the appeal by following the Honble High Court of Karnataka decision in the case of mPortal India Wireless Solutions Pvt. Ltd. Vs. CST, Bangalore reported in 2011-TIOL-928-HC-KAR-ST. The relevant portion of the said decision is reproduced as under:- ":5.1 From the records of the case it is seen that during the impugned period the appellant had exported the following goods/services: (i) Software Maintenance Service, classifiable under the category of Management, Mainte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, Notification NO. 5/2006-CE (.N.T.) dated 14/03/2006 has been issued. Rule 6 of CENVAT Credit Rules, 2004 deals with obligation of the manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Under Rule 6(3)(c), the provider of output service shall utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. In the present case, the services provided by the appellant and exported is not a taxable output service inasmuch as software development software service and software consultancy service become taxable only in the Budget 2008. Therefore, the cap of 20% prescribed under Rule 6(3)(c) have no application whatsoever. Therefore, there was no bar on the appellant in availing full credit in respect of IT software services during the material period. 5.5 The appellant has received input/input services for rendering of taxable services during the material period, which has been exported. The hon'ble High Court of Karnataka in mPortal India Wireless Solutions P. Ltd. (supra) case, in a similar situation, held as follows: "6. The assessee is a 100% export oriented unit. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed in Notification No. 5/2006-CE(NT) dated 14/03/2006 and the Revenue shall verify the same." The ratio of the above Tribunal decision is squarely applicable to the present case as the Tribunal in the above case has held that the software maintenance service is classifiable under the category of Management and Maintenance or Repair Service (MMRS) during the relevant period and in the present case it is clearly established that the appellants have paid the service tax on MMRS and availed credit. The above decision was followed by the co-ordinate Bangalore Bench of the Tribunal in the case of Apotex Research Pvt. Ltd. Vs. CC, Bangalore (supra). The various Tribunal's decisions relied by the Revenue are not applicable and distinguishable to the facts of the present case. 20. Further the Tribunal Mumbai Bench in the case of CCE, Pune Vs. Barclays Technology Centre (I) Pvt. Ltd - 2014 TIOL-2641-CESTAT-MUM by relying the decision in the case of Tata Consultancy services Ltd. Vs. CST, LTU, Mumbai,- 2012-TIOL-1034-CESTAT-MUM, rejected the revenue appeal and allowed the refund of input services utilized in the export of software services to SEZ. As already discussed in the preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority while computing the value has deducted the value of SEZ exports from the export turn over (numerator) but retained the SEZ export turn over in the total turnover (Denominator). The appellants contended that the adjudicating authority when deducting the value of SEZ exports from the turnover, ought to have deducted the same from the total turnover. Vis-`-vis, or if he has included it in the turn over, he should have also included it in the export turn over. 23. In this regard on identical issue the Mumbai Tribunal Co-ordinate Bench in the case of CCE, Pune Vs. computer land UK Ltd.,- 2015 (10) TMI 517 -CESTAT-MUMBAI discussed the correct method of computation of total turnover vis-`-vis export turnover and upheld the impugned order and rejected the revenue appeal. The relevant portions of the order are reproduced as under. 4. On perusal of the record, it transpires that the first appellate authority has clearly recorded the factual matrix of the case as to there being no dispute that the appellant had rendered export of services and has availed CENVAT credit of the input services received by him. Revenue is only disputing the quantum of the refund claim which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their provision & issuance of invoice, the new Rule 5 of the CCR is not applicable. 16. Applying the provisions described in Para 15 above on the present case, I find that the Appellant have included the Invoice No. Mar'12-01 and Invoice No. Mar 12-02, both dated 30-03-2012, in the present refund claim on the ground that payments in respect of the same were received on 11-04-2012. However, the export of services covered by the said invoices had been completed prior to 31-03-2012, as reflected in the date of issuance of the said invoices. As provisions of new Rule 5 of the CCR are applicable to the exports made on or after 01-04-2012, the exports covered said invoices issued prior to 01-04-2012 have to be excluded from the present refund claim for arriving at export turnover of the present quarter of April 2012 to June 2012. For calculating export turnover of the services and total turnover of services for relevant period of April-June 2012, only those services which were provided after 01-04-2012 need to be considered. Further, it is clear from the figures mentioned in the Order-in-Original that the Appellant had exported their entire turnover and had not provided any servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assesse, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of Section 80 HHC, the export profit is to be derived from the total business income of the assesse, whereas in Section 10-Am the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the lower authorities while computing the turn over deducted the value of SEZ exports from the export turn over (numerator) and retained the same in the total turnover (denominator) which has resulted in the anomaly and the reduction in the quantum of refund. The Clause 5 of the Notification No. 5/06 dated 14.3.06, clearly stipulates that the formula has to be applied only for the activity to which the claim relates and it is for the entity as a whole. Accordingly, we hold that when the revenue proceeded to include the value of SEZ exports in computing the total turnover, the same should also have been included in computing export turnover. By respectfully following the above Tribunal decision and the Honble High Court decision, we hold that the order of the LA rejecting the refund claim by adopting the wrong method of computation is not justified and liable to be set aside to that extent of restriction of the refund claim. We hold that the value of export turnover should be equal to the total turnover and the value of SEZ exports should be included in the export turnover (numerator). Accordingly, the appellants are eligible for the full refund claim in appeal Nos. ST/4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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