Commissioner Vs Qualcomm India Pvt. Ltd. (Telangana High Court)
Summary: The Telangana High Court considered two appeals filed by the Revenue against the common order of the CESTAT, Hyderabad concerning refund of accumulated CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004. M/s. Qualcomm India Pvt. Ltd., a 100% STP unit, was engaged in providing software-related services for designing, developing and testing products and had exported its entire output service to group companies located abroad. Since it could not utilise the CENVAT credit availed on input services for payment of service tax on taxable output services, it claimed refund of the unutilised credit under Rule 5.
The jurisdictional service tax authority had partly allowed the refund claims but denied the benefit in certain cases on the ground that there was no nexus between the input services and the output services exported by the assessee. The first appellate authority set aside the rejection of the refund claim and remanded the matter for de novo adjudication, while dismissing the Revenue’s appeal. Both the assessee and Revenue thereafter approached the Tribunal, which ultimately allowed the refund claim and rejected the Revenue’s contention.
Before the High Court, the central issue was whether refund under Rule 5 could be denied merely on the ground that there was no nexus between the input services and exported output services when the availment of CENVAT credit itself had not been challenged. The Court noted that Rule 14 specifically provides for recovery of CENVAT credit in cases of irregular availment or utilisation, but the Revenue had not invoked Rule 14 against the assessee. Consequently, where the availment of credit under Rule 3 was not questioned, denial of refund under Rule 5 on the ground of alleged lack of nexus could not be justified.
The Court further considered the amendment to Rule 5 with effect from 01.04.2012. For the period prior to 01.04.2012, the relevant provision did not prescribe any nexus between input services and output services as a condition for refund. For the subsequent period, the substituted Rule 5 prescribed the formula for determining the refund in respect of exported output services. The Court also referred to the Tribunal’s finding that, since the Department had not specifically alleged actual exportation of services or use/utilisation of the disputed services for such activities, the refund was available subject to adherence to the prescribed formula.
Holding that the Tribunal’s findings were findings of fact and did not call for interference, the High Court concluded that the assessee was entitled to refund of unutilised CENVAT credit under Rule 5. It held that no substantial question of law arose for consideration and accordingly dismissed both Revenue appeals. The pending miscellaneous petitions were also closed and there was no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
As the issue involved in both the appeals is common and the respondent/assessee being the same, both the appeals are being disposed of by this common judgment.
2. These appeals are directed against the common order No.A/31169-31170/2019 dt.07.08.2019 in Service Tax Appeal Nos.22355 of 2014 and 30172 of 2016, passed by the Customs, Excise and Service Tax Appellate Tribunal, Regional Bench, Hyderabad (for short, ‘the Tribunal’).
3. The Revenue is the appellant in both the appeals before this Court.
4. Before the Tribunal, there were two appeals, – one filed by the respondent/assessee, numbered as ST No.22355 of 2014, and the other by the appellant/revenue, numbered as ST No.30172 of 2016.
5. By the present appeals filed, the revenue is questioning the common order passed by the Tribunal in the above mentioned two appeals to the extent it had allowed the appeal of the respondent/assessee and dismissing the appeal of the appellant/revenue.
6. Before the Tribunal, it is the admitted case that the respondent/assessee is, inter alia, engaged in providing software related services for design, developing and testing for enhancement and improvement of its groups existing products and new products; that the respondent/assessee is a 100% STP unit; that the respondent/assessee had exported the entire output service to its group companies located abroad; that the services provided by the respondent/assessee are categorized as taxable service, defined under Section 65(105) of the Finance Act, 1994 (for short, ‘the Finance Act’); that in view of the exportation of entire output service, the respondent/assessee was not in a position to utilize the CENVAT credit availed on its input services for payment of service tax on the taxable output service; and thus, became entitled to claim refund of the service tax paid by it on the taxable input services in terms of Rule 5 of the CENVAT Credit Rules, 2004 (for short, ‘the Rules’).
7. As the Rules, in particular Rule 5 of the Rules, provides for refund of unutilized CENVAT credit used for export of taxable output service, the respondent/assessee had filed refund application before the jurisdictional service tax authority. The jurisdictional service tax authority had partly allowed the refund benefit in favour of the respondent/assessee and denied the benefit in some other cases, holding that there was no nexus between the input services and the output service exported by it.
8. Being aggrieved by the said Order-in-Original, both the appellant/revenue as well as the respondent/assessee preferred separate appeals before the first appellate authority as provided under Section 35F of the Central Excise Act, 1944 (for short, ‘the Central Excise Act’), as applicable to service tax by virtue of Section 83 of the Finance Act.
9. The first appellate authority, by Order-in-Appeal passed, had set aside the Order-in-Original to the extent it had rejected the refund claim made by the respondent/assessee and remanded the matter to the lower adjudicating authority for de novo adjudication. So far as the appeal filed by the appellant/revenue is concerned, the same was dismissed.
10. It is against the Order-in-Appeal passed under Section 35F of the Central Excise Act to the extent the appellate authority had set aside the order rejecting the refund claim of the respondent/assessee and remitting the matter to the original adjudicating authority for de novo consideration, the respondent/assessee preferred further appeal before the Tribunal. Similarly, the revenue also filed appeal before the Tribunal, being aggrieved by the order of the appellate authority to the extent it had dismissed the appeal of the revenue.
11. Heard Sri B.Narayan Reddy, learned Senior Standing Counsel appearing for the appellant/revenue.
12. As seen from the order of the Tribunal as well as Order-in-Appeal and the Order-in-Original, the issue involved therein relates to the refund of accumulated CENVAT credit under Rule 5 of the Rules.
13. Rule 5 of the Rules provides for refund of CENVAT credit to a service provider, who provides an output service, which is exported without payment of service tax, subject to compliances of the procedures/guidelines laid down under the notifications issued thereunder.
14. On the basis of the factual findings recorded by the original authority as well as the first appellate authority and the Tribunal, it is seen that the refund benefit was denied to the respondent/assessee on the sole ground that there was no nexus between the input services and the output services exported by the appellant/revenue.
15. It is not in dispute that Rule 14 of the Rules provides that in case of irregular availment of CENVAT credit or its utilization, the authorities under the Finance Act are empowered to recover the same from the assessee. It is also an admitted fact that the said provisions have not been invoked by the appellant/revenue against the respondent/assessee.
16. As the availment of CENVAT credit by the appellant under Rule 3 of the Rules is not called in question, the denial to grant refund under Rule 5 of the Rules without there being any proceedings initiated under Rule 14 of the Rules by seeking to deny the refund on the ground of the respondent/assessee availed CENVAT credit on input services, which according to the appellant/revenue have no nexus with the output service, in our considered view, cannot be held to be justified.
17. Further, it is to be noted that these appeals relate to period prior to amendment made to Rule 5 of Rules w.e.f 01.04.2012 and also thereafter. In so far the claim for refund of CENVAT credit for the period prior to 01.04.2012 is concerned, as Rule at the relevant point of time did not contain any prescription as to the nexus between input services and output service, the denial of refund on the said ground cannot be held to be valid. For the period subsequent to the introduction of substituted Rule 5 of Rules, the only prescription for grant of refund in respect of export of output service is by applying the formula specified.
18. The Tribunal, while considering the above aspect, had observed as under:
‘In so far as taking of irregular CENVAT is concerned, Rule 14 ibid clearly mandates that in case of irregular availment of credit or its utilization, such credit can be recovered from the assessee and for effecting the recoveries, the provisions of Section 11A of the Central Excise Act, 1944/Section 73 of the Finance Act, 1994 shall apply mutatis mutandis. It is an admitted fact on record that the department has not invoked the provisions of Rule 14 ibid for effecting recovery of the alleged irregular CENVAT credit availed by the assessee-appellant. Thus, under such circumstances, it can be said that taking of CENVAT credit on the disputed services by the appellant is in conformity with CENVAT statute. Rule 5 ibid nowhere specifies that CENVAT credit can be denied on the ground of irregular availment or utilization of the same. Thus, in absence of specific provisions contained in the statute, denial of the refund benefit provided under Rule 5 of ibid, in our considered opinion, cannot stand for judicial scrutiny.’
19. The Tribunal by observing as above, held –
“Since the department has not specifically alleged regarding actual exportation of services by the assessee-appellant and use/utilization of disputed services for such activities, benefit of refund should be available in terms of the unambiguous provisions contained in Rule 5 ibid, subject only to adherence of the formula laid down thereunder.”
20. The above findings as recorded by the Tribunal, in our view, do not call for any interference, being a finding of fact.
21. Thus, this Court is of the view that in the given facts and circumstances, the reasons assigned by the Tribunal for holding that the respondent/assessee is entitled for grant of refund of unutilized CENVAT credit under Rule 5 of the Finance Act, does not call for any interference.
22. In view of the above, this Court is of the opinion that no substantial question of law arises for consideration in these appeals.
23. Accordingly, both the appeals of the revenue are dismissed.
24. Pending miscellaneous petitions, if any, shall stand closed in the light of this final order. No order as to costs.
