CA URVASHI PORWAL
Brief of the Case
In the case of M/s. Cognizant Technology Solutions Vs. CCE & ST (LTU), Chennai, it was held that the export turnover portion in the formula prescribed under Rule 5 of CCR includes the value of exports made from SEZ. It was held 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 and accordingly 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).
Facts of the Case
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.
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 provision of software maintenance service which was not covered under the ambit of Management, maintenance, repair service (“MMRS”) upto 16.05.2008) and hence the same was not taxable up to 16.05.2008.
Aggrieved by these orders, the appellants preferred appeals before this Tribunal.
The adjudicating authority rejected the refund on the ground that the appellants rendered software maintenance service which was not taxable prior to 16.05.08 and the said service is not covered under “Management Maintenance and or Repair service”. The adjudicating authority also held that services relating to development of information technology software and maintenance of special software are specifically included as taxable services only from 16.05.2008. The appellants are not eligible for refund of CENVAT credit of input services availed on the software maintenance service. Aggrieved by these orders, the appellants preferred appeals and the Commissioner (Appeals) upheld the orders of the adjudicating authority and rejected the appeals.
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).
Contentions of the Assessee
The appellants submitted 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. It was submitted 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. Without prejudice to the aforesaid submission, they also submitted that even assuming the services were not taxable during the impugned period; refund of unutilized input service credit ought not to be denied on the ground of taxability since otherwise it would amount to export of taxes. Further it was submitted that even if the services are not taxable prior to 16.05.2008, they are eligible for refund under Rule 5 of CCR and refund cannot be denied on the ground of non-taxability. In support of their argument, they placed reliance on catena of decisions including the following and submitted a compilation of case laws relied upon in this regard:-
* MPortal India Wireless Solutions Private limited vs. CST Bangalore 2011 TIOL 928 HC-KAR-ST
* KPIT Cummins Infosystems ltd. vs. Commissioner of Central Excise, Pune I 2013- TIOL-931-CESTAT- MUM
* APOTEX REASEARCH PVT LTD VS. CC, BANGALORE- CUS 2014 TIOL -1836- CESTAT BANG
* REPRO INDIA LIMITED VS. UNION OF INDIA & ANR 2009 (235) ELT 614 (Bom.)
On the second issue relating to the method of computation of export turnover and total turnover, the issue for consideration was on the manner of arriving at quantum of eligible refund in accordance with the formula prescribed under Notification 05/2006 – CE(NT) dated 14-03-2006. The appellants operate from various premises across India and have taken a centralized registration for service tax purposes and that all their premises were either STPI or SEZ units from where services are predominantly exported with negligible domestic sales. A sample computation methodology which was under dispute on the manner of arriving at the eligible refund was submitted and further stated that there are three parameters for arriving at the quantum of refund which are as follows:
* CENVAT Credit
* Export turnover
* Total Turnover
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.
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 relatesand thus if the department wanted to adopt a stand that the SEZ activities had no relation to the claim, such turnover should have been deducted from the total turnover (i.e. denominator) also.
In support of these above arguments, they placed reliance upon catena of decisions in the context of Section 80HHC and Section 10 A of the Income Tax Act, 1961 drew attention to ruling of Hon’ble Karnataka High Court 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.
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. It was further 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.
Contentions of the Revenue
The Revenue reiterated the grounds of the impugned order & stated that the refund has been correctly denied.
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that on perusal of the photocopy of ST-3 returns filed by the appellant for the period April September, 2007 at page-48 of the annexure to the ST-3 return, it was found that the appellant has furnished the details of the taxable service i.e., MMRS and at page 51 it has been clearly mentioned that the appellant has paid the service tax both by cash as well as by debit in their CENVAT credit of a total amount of Rs. 86,72,780/- paid by cash and Rs. 12,16,456/- paid through their CENVAT account and also they have paid education cess and higher education cess of Rs. 1,73,457/- in cash and Rs. 24,329/- through CENVAT and Rs.5,351/- in cash and Rs. 12,120/- through CENVAT account respectively and the appellant has claimed refund of service tax paid on input service which was used in output service. From the above, it is very 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 Hon’ble 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 Hon’ble 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.
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 paragraphs, the appellants have paid service tax on MMRS and duly filed the ST-3 returns and availed the cenvat credit and claimed the refund under Rule 5 of CCR on that portion of the input services used in export of services during the relevant period. By respectfully following the Hon’ble High Court decision and the Tribunal decision referred above, it was held that the appellants are eligible for refund under Rule 5 of CCR on the input services used in the export of service.
On the second issue in respect to the computation of total turnover vis-a-vis export turnover for determining the refund amount as per the formula prescribed under Notification No. – 05/2006-CE(NT) dated 14.03.2006, in the present case, while calculating the quantum of refund eligible as per the formula prescribed under Rule 5 of CCR, the appellant claimed the refund on the export turnover of both SEZ and STPI units. For the purpose of total turnover, the appellants have computed total turnover of both SEZ and STPI units as the appellants being one entity. Whereas, it is seen the adjudicating 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-a-vis, or if he has included it in the turn over, he should have also included it in the export turn over.
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-a-vis export turnover and upheld the impugned order and rejected the revenue appeal. Further, the Hon’ble High Court in the case of CIT & Others Vs. Tata Elxsi Ltd. & Others reported in 247 CTR- 334, in respect of computation of deduction under Section 10 (A) of IT Act, dealt the identical issue of computation of export turn over and total turnover and dismissed the revenue appeal and upheld the Tribunal order.
The above Tribunal decision and the Hon’ble High Court decision are squarely applicable to the facts of the present case in so far as the computation of the export turnover and total turnover for computing the export value as per the formula prescribed under Clause 5 of Notification No. 5/2006 dated 14.03.2006. As in the present 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, it was held 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 and accordingly 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).
In view of the above, the appeal is allowed.