Microsoft India (R & D) Pvt. Ltd. Vs Commissioner of Central Excise and Service Tax (CESTAT Bangalore)
The CESTAT Bangalore considered an appeal filed by Microsoft India (R & D) Pvt. Ltd. against the order of the Commissioner of Central Excise and Service Tax, Bangalore, which had rejected the appellant’s refund claim and confirmed a demand of ₹40,52,313, along with interest and an equal penalty.
The appellant provided customer care and product support services relating to Microsoft software products through its Global Technical Support Centre in Bangalore. It was registered as a 100% Export Oriented Unit under the Software Technology Park of India scheme and claimed refund of accumulated CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004. For April 2010 to March 2011, a show-cause notice proposed denial of credit relating to Event Management (₹4,81,289), Outdoor Catering (₹14,66,348), Mandap/Shamiana Service (₹8,456), and Rent-a-Cab Service (₹20,96,220).
The Commissioner denied the credit on the grounds that the services did not have the requisite nexus with the taxable output services and that their absence would not directly affect the quality or efficiency of the appellant’s taxable services.
Before the Tribunal, the appellant submitted that the services qualified as “input services” under Rule 2(l) of the CENVAT Credit Rules, 2004, and that credit for the same services had been allowed for the preceding period. It also relied upon the principle of consistency and pointed out that refunds involving the same input services had been granted for other periods.
The Tribunal examined the definition of input service applicable during the relevant period and noted its wide scope, including services used by a provider of taxable service for providing an output service and activities relating to business. It also referred to the amendment introduced by Notification No. 3/2011-CE dated 1 March 2011, which introduced exclusion clauses.
The Tribunal accepted the appellant’s explanation regarding the nexus of each service with its business. Event Management services were used for business meetings, seminars and related activities; Outdoor Catering was provided for employee welfare and facilitated effective working time; Pandal/Shamiana Services were used for business meetings and events; and Rent-a-Cab Services facilitated employee transportation between residences and the workplace, supporting business operations.
The Tribunal also noted that, for the immediately preceding period of October 2006 to March 2010, the Commissioner had dropped proceedings involving the same services and the Revenue had not appealed. It relied on the principle of consistency, referring to Radhasoami Satsang vs. Commissioner of Income Tax. Further, for the period April 2010 to March 2011, refund had subsequently been allowed by order dated 30 September 2019, and the Revenue had not appealed that order. The Tribunal observed that there could not be two different yardsticks for determining eligibility for CENVAT credit and refund.
Accordingly, the Tribunal held that the order denying CENVAT credit was not sustainable in law, set aside the impugned order, and allowed the appeal. The stay petition was consequently disposed of.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The present case was listed for disposal of stay. Since the issue involved in the present case is in a narrow compass, hence with the consent of both the parties, we proceed to decide the appeal itself.
2. The present appeal is directed against the impugned order dated 4.7.2013 passed by the Commissioner of Central Excise and Service Tax, Bangalore whereby the learned Commissioner has rejected the refund claim of the appellant and confirmed the demand of Rs.40,52,313/- along with interest and equal penalty.
3. Briefly the facts of the present case are that the appellant is engaged in providing customer care and product support services in relation to Microsoft software products to the customers of the Microsoft located in India and abroad. Appellant provides these services through its Global Technical Support Centre (GTSC) located in Bangalore which is independently registered with the Service Tax authorities and is a 100% Export Oriented Unit under Software Technology Park of India scheme under the Foreign Trade Policy. The major portion of the appellant’s turnover qualifies as export of services, it results in accumulation of CENVAT credit availed by it on various input services. Appellant has been regularly filing refund of such accumulated input tax credit under Rule 5 of the CENVAT Credit Rules, 2004. For the period, April 2010 to March 2011, a show-cause notice dated 14.10.2011 was issued to the appellant seeking denial of CENVAT credit availed by the appellant on the following input services.
| Sl. No. | Description of service | Amount
(in Rupees) |
| 1 | Event Management | 4,81,289 |
| 2 | Outdoor catering | 14,66,348 |
| 3 | Mandap / Shamiana Service | 8,456 |
| 4 | Rent-a-cab Service | 20,96,220 |
| Total | 40,52,313 |
The charge against the appellant in the show-cause notice was that the impugned input services did not qualify to be eligible input service as the appellant failed to satisfy the nexus test for the said input services. The other ground proposed to reject the refund was that these input services were not necessary for the appellant for provision of its output service. Appellant filed detailed reply to the show-cause notice explaining the justification and nexus between the input service availed for rendering output service. After following the due process, the learned Commissioner confirmed the entire demand along with 100% penalty and applicable interest by holding that the impugned services received by the appellant do not have any nexus with the taxable services provided by the appellant and secondly, the absence of such services would not directly have an impact on the quality and efficiency of the provision of taxable services. Aggrieved by the said order, appellant is before us.
4. Heard both the parties and perused the records.
5. Learned counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the definition of ‘input service’ as provided in Rule 2 (l) of CENVAT Credit Rules, 2004. He further submitted that for the same impugned services for the prior period, CENVAT credit has been allowed and subsequently, the refund has also been allowed. He further submitted that the impugned services certainly qualify as eligible for CENVAT credit based on the statutory definition of ‘input service’ and departmental circulars and various case laws relied upon by the appellant but the adjudicating authority has not appreciated the same. He further submitted that the grounds on which the CENVAT credit has been denied is against the settled law holding the impugned services as input services. He further submitted that the impugned services were indeed used for provision of output services of the appellant and the finding that in the absence of such input services, the appellant can still render their output service has no relevance in the eyes of law. He also submitted that what is required in the eyes of law is that a particular input service is used by the appellant for provision of its output service. He further submitted that for the immediately preceding period i.e., October 2006 to March 2010, the appellant was issued a show-cause notice dated 11.10.2010 seeking denial of CENVAT credit of Rs.1,42,21,280/- which inter alia included all the impugned services in the present appeal, in addition to construction of complex service. The said show-cause notice dated 11.10.2010 came to be adjudicated vide Order-in-Original dated 10.10.2012 by which the learned Commissioner as adjudicating authority was pleased to drop the entire proceedings under the show-cause notice dated 11.10.2010. He also submitted that since in the appellant’s own case for the immediate preceding period on the very same impugned services, credit has been held to be eligible, then in the present case also, the said credit should be allowed. He further submitted that when the order of the Commissioner for the prior period allowing CENVAT credit was brought to the notice of the learned Commissioner in the present case, the Commissioner accepts that the department has accepted the said order but further clarified that such acceptance was not on merit but due to monetary limits. The learned counsel submitted that this observation of the learned Commissioner is factually incorrect because in the previous order, the CENVAT credit involved was to the tune of Rs.1.42 crore and during the relevant time, the monetary limit for not filing the appeal was Rs.5,00,000/- only. He further submitted that the Commissioner has observed that res judicata and the Principle of Estoppel is not applicable in taxation matter but he submitted that it is equally true unless there is a change in the fact or in the law or the department has been able to come out with a new ground to change its earlier view, the Principle of Consistency warrants that the department should be estopped from taking a contrary view than the view taken for the previous period unless the order passed for the prior period is reversed by the competent authority. For this submission, he relied upon the decision of the apex court in the case of Radhasoami Satsang vs. Commissioner of Income Tax: (1992) 1 SCC 659. The learned counsel further submitted that the department itself has accepted the nexus between the input services and the output services rendered by the appellant for one period and unless contrary is proved or thee is change in law, there is no basis for denial of such nexus for the subsequent period. The learned counsel also submitted that for the prior and concurrent periods, appellant had applied for refund of accumulated CENVAT credit and the same was allowed on very same input services as were covered in the present appeal. The learned counsel also placed on record the decision of the department pertaining to the period April 2007 to September 2007 and also for the period April 2010 to March 2011 wherein the input services involved in the present appeal has been held to be eligible for refund under Rule 5 of CENVAT Credit Rules, 2004. Revenue has not appealed against these orders. Learned counsel further submitted that it is a settled position in law that there cannot be two different yardsticks i.e., one for allowing refund and the other for deciding the eligibility of CENVAT credit. For this proposition, the learned counsel relied upon the following Circular No.120/01/2010-ST dated 19.1.2010 and the following case laws:
(a) Commissioner of Service Tax, Delhi vs. Convergys India Services Pvt. Ltd.: 2009 (16) STR 198 (Tri.-Del.)
(b) Commissioner of Service Tax, Delhi & Delhi-III vs. Convergys India Services Pvt. Ltd.: 2017 (48) STR 173 (Tri.-Chan.)
6. On the other hand, the learned AR reiterated the findings of the impugned order.
7. After considering the submissions of both the parties and perusal of the material on record, we find that the only issue involved in the present case is whether ‘input services’ in the nature of Event Management, Outdoor Catering, Mandap or Shamiana Service and Rent-a-Cab service qualify as eligible input services for the appellant to claim CENVAT credit during the relevant period. Further, we find that the appellant is a 100% Export Oriented Unit registered under Software Technology Park of India (STPI) scheme and has been availing input services for rendering its output services. Appellant has been claiming refund of accumulated tax credit under Rule 5 of CENVAT Credit Rules, 2004. In the present appeal, the CENVAT credit has been denied on four input services mainly on the ground that these impugned input services do not fall in the definition of ‘input service’ and there is no nexus between the input service and the output service and secondly, absence of such services will not directly have an impact on the quality and efficiency of provisions of taxable services. In this regard, it is essential to examine the definition of ‘input service’ as defined under Rule 2(l) of CENVAT Credit Rules, 2004 during the relevant period, which is reproduced herein below:
“(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;”
7.1 Further, the department vide Notification No.3/2011-CE dated 1.3.2011 amended the definition of ‘input service’ by introducing exclusion clauses. During the relevant period, the definition of ‘input service’ was very wide and the Tribunal has also recognised the wide import of the word ‘used’ in the definition through the case law of M/s. Dell International Services India Pvt. Ltd. vs. CCE, Bangalore: 2010 (17) STR 540 (Tri.-Bang.) by holding that the definition of ‘input service’ is of a very wide interpretation for the following reasons:
a) It uses the phrase ‘whether directly or indirectly, in or in relation to’, for providing,
b) It gives an inclusive definition which further widens the scope of the main definition; and
c) It uses the phrase ‘activities relating to business’ as an input service.
7.2 Further, we find that the appellant has given full justification and established nexus between the input service and the output service, which is given herein below:
(i) Event Management Service – Such services are procured for the purpose of planning, promotion, organizing or presentation of business. Such services are an essential requirement while conducting business or any meetings and are beneficial to the employees or customers attending the business meet. Official meetings and seminars are conducted where large number of employees can be accommodated at once to enhance the business objective, these meetings and seminars are part of regular activity either to improve or deliver the services. Accordingly, such are input services in relation to business activities and are necessary for provision of output services by the company.
(ii) Outdoor Catering Service – Such services procured for the purpose of provision of supply of food and beverages to the employees of the company. The same is towards the welfare of the employees. As there is no facility in the immediate vicinity where the employees can have their meals, services of such outdoor caterers are being utilized. Therefore, this cafeteria facility is essential for the employees to work and hence saves effective working time and allows for a consistency in the provision of food across to the employees. Hence, this facility is integral to running of the business.
(iii) Pandal or Shamiana Service – Such services provided in relation to supply of furniture, fixtures, lights and light fittings is an essential requirement while conducting business or any meetings and is to benefit the employees or the customers attending the business meet. Accordingly, such services qualify as input services in relation to business activities and are necessary for provision of output services by the appellant.
(iv) Rent-a-Cab service – Transport / cab facilities provided are for the employees to commute between their places of residence to the place of work. Such services are not only for the welfare of the employees but are essentially in the company’s interest to carry out its business activities effectively. The employees have to reach on time to deliver services and accordingly transport services of vendors are being utilized. Hence, the same is essential for the business operations of the company.
7.3 Further, we find that for the immediate preceding period October 2006 to March 2010 for the same impugned services as involved in the present appeal, the learned Commissioner vide its order dated 10.10.2012 has dropped the proceedings and the department has not filed the appeal against the same. We further note that Principle of Consistency warrants that the department should not have taken a contrary view in the present case in view of the apex court’s decision in the case of Radhasoami Satsang vs. Commissioner of Income Tax cited supra. Further, we find that the adjudicating authority does not dispute the usage of impugned input services for providing the output services but has disallowed the credit only on the ground that these are not connected with the business activity or not necessary for providing output service. In this regard, we note that once for the previous period such nexus has been accepted by the department than there is no basis for denial of such nexus for the subsequent period. Further, we also note that for the current period involving April 2010 to March 2011, the refund has also been allowed vide order dated 30.9.2019 and the order has also been placed on record wherein the impugned services have been held to be eligible for refund under Rule 5 of CENVAT Credit Rules, 2004 and the Revenue has not appealed against the said order. We also note that it is a settled position of law that there cannot be two different yardsticks i.e., one for allowing refund and the other for deciding the eligibility of CENVAT credit. This proposition has been clarified by the Department in their Circular No.120/01/2010-ST dated 19.1.2010. Further, in the case of Commissioner of Service Tax vs. Convergys India Services Pvt. Ltd. cited supra, it has been held by the Division bench of the CESTAT, Delhi that there cannot be two different yardsticks, one for allowing refund and another for deciding eligibility of CENVAT credit.
8. In view of our discussion above, we are of the considered view that the impugned order denying the CENVAT credit on impugned services is not sustainable in law more so when refund relating to the impugned services has already been granted to the appellant. In view of this, we set aside the impugned order by allowing the appeal of the appellant. Stay petition is accordingly disposed of.
(Order was pronounced in Open Court on)
