Introduction: The Customs Excise and Service Tax Appellate Tribunal (CESTAT) in Bangalore has recently ruled on refund claims of unutilized CENVAT credit, specifically concerning Service Tax paid on various input services. The Commissioner (A) had previously found that these input services were used in or in relation to the manufacture of finished goods. This article provides an in-depth analysis of the case and the CESTAT’s decision to uphold the refund.
Background of the Case: The case, titled “Commissioner of Customs vs. Jeans Knit (P) Ltd,” revolves around the refund claims of unutilized CENVAT credit for input services on which Service Tax was paid. The key issue is whether these input services were genuinely related to the manufacture of finished goods.
The Commissioner’s Decision: The Commissioner (A) had initially dismissed the appeals filed by the Revenue concerning Customs Appeal No.456 to 459 and 1146/2011, stating that the input services were indeed used in or in relation to the manufacture of finished goods. However, the Revenue challenged this decision on the grounds that the input services were not legally and properly used in manufacturing.
The Respondent’s Argument: The respondent, Jeans Knit (P) Ltd, argued that they were eligible to claim CENVAT credit on the input services and were rightly entitled to the refunds under Rule 5 of the Cenvat Credit Rules, 2004. They pointed out that in earlier periods, where refund claims were rejected, the Tribunal had ruled in their favor. They also cited a change in the definition of ‘input service’ that expanded the scope for availing credit. Additionally, they referred to a judgment by the High Court of Karnataka in a similar case.
The Core Issue: The primary issue at hand is whether the respondent is eligible for a refund of accumulated CENVAT credit for input services that the Revenue claims are unrelated to the manufacture of exported goods.
Lack of Contrary Evidence: CESTAT found that various input services were indeed used in the manufacture of export goods. There was no evidence presented by the Revenue to prove otherwise, except for the fact that these input services did not align with the inclusive definition of ‘input service’ under Rule 2 of the Cenvat Credit Rules, 2004. Notably, the earlier periods had seen the Tribunal ruling in favor of the respondent.
Conclusion: The CESTAT’s decision to uphold the refund of CENVAT credit on input services in this case is rooted in the lack of evidence presented by the Revenue to contradict the claim that these services were related to the manufacture of export goods. The Tribunal’s decision aligns with its previous rulings in similar cases.
FULL TEXT OF THE CESTAT BANGALORE ORDER
These appeals are filed by Revenue against allowing refund claims of unutilised CENVAT credit where Service Tax was paid on various input services. The Commissioner (A) held that the original authority found that the goods are used in or in relation to the manufacture of finished goods and based on the earlier Orders-in-Appeals No.43/2009 dated 30.04.2009; No.48/2009 dated 19.5.2009 and No.70/2009 dated 20.07.2009, decided in favour of the respondent. Accordingly, the Commissioner (A) vide Order-in-Appeal No. 156/2010 and No.157/2010 both dated 28.8.2010 dismissed the appeals filed by the Revenue in respect to Customs Appeal No.456 to 459, 1146/2011. In respect of Customs Appeal Nos.687, 689/2011, respondent was in appeal before the Commissioner (A) and vide Impugned Order-in-Appeal No.220/2010 dated 11.2.2011 allowed the refund. Hence, in these present appeals, the Revenue is aggrieved by these orders of the Commissioner (A) and filed appeals only on the ground that various input services on which credit has been allowed and refund has been sanctioned, is not legal and proper because input services were not used in or in relation to the manufacture.
2. On the other hand, the respondent has submitted that they are eligible to take cenvat credit on the input services and they were rightly eligible for the refund claims under Rule 5 of the Cenvat Credit Rules, 2004. It is also submitted that in their own case for earlier periods where the refunds were rejected, this Tribunal had held in favour of the respondent in the case of Jeans Knit Pvt Ltd vs. CC, Bangalore: 2011 (21) STR 460 (Tri.-Bang.) and also wherein Revenue was in appeal before the Tribunal in respondent’s own case, the Tribunal dismissed the appeals filed by the Revenue vide Final Order No.20953-20960/2017 dated 23.06.2017 and Final Order No.20859-20863/2023 dated 23.06.2023. The present appeals are only periodical refund claims filed under Rule 5 of CENVAT Credit Rules, 2004 for a later period. It is submitted that the issue is no longer res integra in as much as in their own case, the appeals were allowed. It is also submitted that vide Notification No.5/2006-CE (NT) dated 14.03.2006, the words “used in” was replaced with the words “used in or in relation to” thus enlarging the scope for availing credit. They also placed reliance on the judgment of the Hon’ble High Court of Karnataka in the case of CCE, Bangalore vs. Stanzen Toyotetsu (India) Pvt. Ltd; 2011 (23) STR 444 (Kar.).
3. The limited issue to be decided in this appeal is as to whether the respondent is eligible for refund of accumulated CENVAT credit on input services which according to the Revenue are not related to manufacture of goods exported. It is seen that various input services are used in the manufacture of export goods and there is no evidence on part of the Revenue to prove that they are not used in the manufacture of export goods except for the fact that the input services did not find a place in the inclusive definition of ‘input service’ under Rule 2 of Cenvat Credit Rules, 2004. It is also an admitted fact that for the earlier periods in the appellants own case where the Revenue had filed appeal before the Tribunal, the issue was decided in favour of the respondent. In view of the above, the question of denying the refund of accumulated credit does not arise.
4. We do not find any reason to set aside the impugned orders. This Tribunal in respondent’s own case on similar set of facts had rejected the Revenue’s appeals vide Final Order No. 20859 to 20863/2023 dated 23.06.2023. Following the ratio of the above decision, appeals are rejected and the impugned orders are upheld.
(Order pronounced in Open Court on 05/09/2023.)