Dassault Systemes Simulia Private Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that CENVAT Credit towards service tax paid on meal coupons and group insurance for employees is duly available as input service.
Facts- It is contended that the appellant had availed cenvat credit on input services provided by M/s. Sodexo SVC India Private Ltd., Mumbai under Business Support Service for the meal coupons. Credit was also availed on insurance services provided by United India Insurance Ltd. which provided group insurance for employees.
The department was of the view that these services are not having any nexus with the output services provided by the appellants and hence not eligible for credit.
Conclusion- Held that during the relevant period (prior to 01.04.2011) the definition of “input services” had a wide ambit as it included the phrase “activities relating to business”. Thus, almost all the services were covered within the definition of “input services” if used for providing the output services. There is nothing to show that the said services were not used for the employees of the appellant-company. The Tribunal in the case of Ford had considered the issue and held that the credit is eligible. We hold that appellant is eligible for credit and the disallowance of credit is not sustainable and requires to be set aside which we hereby do.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the appellant is a dealer of imported software for their parent company namely, M/s.Dassault Systems Simulia Corp., United State of America. The appellant is engaged in supply of software in India and also provide maintenance, enhancement and support service to their clients in India. During scrutiny of balance sheet for the year 2008-09 as well as the invoices raised by the appellant for the period 2008-09 and 2009-10, it was noticed that though the appellant had incurred expenditure of Rs.7,71,38,177/- towards import of software from their parent company during the period from May 2008 and March 2009 and Rs.13,61,91,300/- during the period 2009-10 they had remitted service tax only for the months of December 2009, January 2010, February 2010 and March 2010 There was short payment of service tax for the above months and also had not paid service tax for the period May 2008 to November 2009.
2. It appeared to the department that the software distributed / sold by the appellant would fall under the category of “Information and Technology Software Service” with effect from 16.05.2008. The appellant by import & sale of software as a dealer provided to their clients, the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in the software products which would fall within the definition of “Information Technology Software Service” (ITSS). The expenditure incurred in foreign currency accounted in the books of accounts towards import of software related to taxable services provided by their parent company situated outside India. The appellant being recipient of services provided by a person from a country other than India was liable to pay service tax in terms of Section 66A of the Finance Act, 1994 and Section 67 (4) (c) of the Finance Act, 1944.
3. On scrutiny of balance sheets for the years 2005-06, 2006-07, 2007-08 & 2008-09 and invoices raised on the parent company it was noticed that appellant had accounted income under the heads “Inter Co-consulting / Professional fees” and “Inter Company income”. The appellant had occasionally sent engineers to USA to undertake technical service for parent company and the billing was done on the basis of man hours at USA. The engineer would be physically present in US office and appellant raised the bill for the services in INR. Further, their research development team undertook quality control and testing work for the software that was developed by their parent company. For this service, the appellant charged the parent company in INR. As per the provisions of Section 65 (105) (k), Section 65 (68), Section 65 (105) (zzh), Section 65 (107) and Section 65 (106) it appeared that appellant has provided ‘Manpower Recruitment & Analysis Service’ to their parent company and received taxable income for the services rendered. On enquiry the appellant stated that they are exporting the services to the parent company.
4. As per Rule 3 (2) of Export of Services Rules, 2005, only if the payment is received in convertible foreign exchange, the service can be treated to be exported. To a query raised by the department, the appellant had replied that they did not receive amount in foreign currency. It appeared that the appellant is liable to pay service tax under ‘Manpower Recruitment or Supply Agency Service’ and ‘Technical Testing & Analysis Service’.
5. It was also seen that appellant had availed cenvat credit on input services provided by M/s.Sodexo SVC India Private Ltd., Mumbai under Business Support Service for the meal coupons. Credit was also availed on insurance services provided by United India Insurance Ltd. which provided group insurance for employees. The department was of the view that these services are not having any nexus with the output services provided by the appellants and hence not eligible for credit.
6. Again, it was noticed that the appellant utilized the credit towards payment of service tax for their liability in the months of December 2009, January 2010 and February 2010 respectively. In terms of proviso to Rule 3 (4) of the Cenvat Credit Rules, 2004 while paying duty of excise or service tax, as the case may be, the cenvat cedit shall be utilized only to such extent that such credit is available on the last day of the month or quarter, as the case may be, for payment of tax / duty relating to that month or quarter, as the case may be. It appeared that the appellant had wrongly utilized the credit taken during the months of December 2009, January 2010, February 2010 and March 2010 towards payment of service tax relating to the months of December 2009, January 2010 and February 2010 respectively. The appellant was thus liable to pay interest of Rs.59,071/- for wrong utilization of cenvat credit.
7. Further, the appellant was also providing exempted services to educational institutions and certain units situated in Special Economic Zone. Rule 6 (3) of Cenvat Credit Rules, 2004 provides that appellant has to reverse the credit proportionate to the value of exempted services. The appellant had not intimated the department of their option to reverse credit on proportionate basis. The appellant is therefore liable to pay an amount equivalent to 8% (from 01.04.2008 to 06.07.2009) or 6% (from 06.07.2009) of the value of exempted services for the period August 2008 to March 2010 which amounted to Rs.15,15,699/-.
8. The show cause notice dt. 04.04.2011 was issued proposing to demand service tax on the taxable services as above and to recover the wrongly availed credit. After due process of law, the original authority vide impugned order confirmed the demand of service tax to the tune of Rs.64,14,748/- under “Technical Testing and Analysis Services” (TTAS). and “Manpower Recruitment or Supply Agency Services” (MRASS). The credit of Rs.11,214/- was disallowed being ineligible as per the definition of “input services” and ordered to be recovered. An amount of Rs.12,17,484/- was confirmed being 6% / 8% of the value of exempted services which is required to be paid as per Rule 6 (3) of the CCR, 2004. Adjudicating authority also directed to pay interest and impose penalties. The adjudicating authority dropped in regard to ITSS Aggrieved by such order, appellant is before the Tribunal.
9. Counsel Ms.Shrayashree appeared and argued for the appellant. The Ld. Counsel adverted to the operative portion of the order and submitted that the appellant is now contesting only the demand of service tax of Rs.64,14,748/-, which is the demand confirmed under MRASS and TTAS. So also, the demand for requirement of reversal of cenvat credit as per Rule 6 (3A) which is Rs.1,21,17,484/- and the cenvat credit disallowed on input services for an amount of Rs.11,214/-.
10. It is submitted by the Ld. Counsel that an amount of Rs.64,14,748/- has been confirmed under “Technical Testing and Analysis Service (Rs.60,23,183/-)” and “Manpower Recruitment or Supply Agency Service (Rs.3,91,565)” on the appellant. In regard to Manpower Recruitment or Supply Agency Service, appellant submitted that they had deputed their Engineers to M/s.Dassault Systems, USA to perform technical services. M/s.Dassault Systems, USA had raised and issued invoices in Indian rupees for the services on the basis of the amounts received by the Engineers. The appellant had received Foreign Inward Remittance Certificates (FIRC) and also furnished the same before the adjudicating authority. Similarly, the technical testing services also were provided to the appellant company situated outside India and consideration for the same had been received in foreign exchange. The Manpower Recruitment or Supply Agency Service and Technical Testing & Analysis Services were executed by the appellant as per the agreement entered by the appellant and their parent foreign company. The consideration was to be paid in convertible foreign currency, viz. US dollars. This satisfies the rules in regard to export of services and therefore cannot be subject to levy of service tax. Ld. Counsel adverted to Rule 4 of Export of Service Rules 2005 which reads as under :
‘any service, which is taxable under clause (105) of Section 65 of the Finance Act, 1994, may be exported without payment of service tax’.
As per Rule 3 (2) of the said rules, the provision of any taxable services specified in sub-rule (1) of Rule 3 shall be treated as ‘export of service’ subject to fulfilment of conditions namely:-
(a) such service is provided from India and used outside India; and
(b) payment for such service is received by the service provider in convertible foreign currency.”
11. It is not disputed that the services were provided by the appellant to their parent company at USA. The department has denied to consider that the services have been exported alleging that appellant has received consideration in Indian rupees and not convertible foreign exchange. The said rule 3 (2) uses the word “convertible foreign exchange” and not “convertible foreign currency” as mentioned in the SCN. It is submitted by the counsel that show cause notice which is the basis of the case put forward by the department has been issued on the wrong application of the provisions of law.
12. The Counsel explained that the demand for the services rendered by the appellant to the parent foreign company has been received in convertible foreign exchange and Foreign Inward Remittance Certificates have been issued. As per Section 2 (n) of Foreign Exchange Management Act, 1999 –
“Foreign exchange” means foreign currency and includes,-
(i) deposits, credits and balances payable in any foreign currency.
(ii) drafts, travellers cheques, letters of credit of bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency,”
(iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;”
13. As per Rule 3 of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 (‘2000 FEMA Regulations’), the manner of receipt of foreign exchange is as below:
“3. Manner of Receipt in Foreign Exchange:-
1. Every receipt in foreign exchange by an authorized dealer, whether by way of remittance from a foreign country (other than Nepal and Bhutan) or by way of reimbursement from his branch or correspondent outside India against payment for export from India, or against any other payment, shall be as mentioned below:
