Case Law Details
Novartis Healthcare Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
CESTAT Mumbai held that refund of unutilized Cenvat Credit of input services duly available even if there is export without payment of service tax.
Facts- Appellant is a company registered under Companies Act. It was providing Information Technology Software Services (ITSS) and Business Support Services (BSS) to its group companies namely Novarties Pharma AG of Switzerland and Novartis Pharmaceutical Corporation of USA, which Appellant asserts to be export of services. In the process Appellant had gathered unutilised CENVAT Credits from various inputs services in order to provide such export of services. As services were provided by the Appellant to its foreign group of companies that qualify the supplies as export of services, non-utilisation of those credits towards payment of Service Tax necessitated filing of refund application for refund of accumulated credit under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 05/2006 C.E. (NT) dated 14.03.2006. Commissioner (A) rejected the appeal.
Conclusion- Held that the services rendered by the Appellant are defined as taxable services under 65(105) of the Finance Act, 1994 but for the purpose of export only they were allowed to export the same without payment of Service Tax but that by itself would not put the services under the category of unentitled service, so as to deny CENVAT Credit and consequential refund to the Appellant. Hence the order.
FULL TEXT OF THE CESTAT MUMBAI ORDER
Rejection of refunds for 7 quarters from July, 2008 to March, 2010 and 8 quarters from April, 2010 to March, 2012 by the Refund Sanctioning Authority that travelled up to Commissioner (Appeals) level, who remanded both the matters for de-novo adjudication and with successive rejection order by the Adjudicating Authority vide Order-in-Appeal No. 96/2013 dated 23.07.2013 refusing refunds in the remand proceeding matter again travelled up to this Tribunal level, after Commissioner (Appeals) confirmed both rejection order through a common order on dated 26.09.20 19, as referred above, is assailed in this appeal.
2. Briefly stated, facts of the case, as narrated by the Appellant, is that Appellant is a company registered under Companies Act. It was providing Information Technology Software Services (ITSS) and Business Support Services (BSS) to its group companies namely Novarties Pharma AG of Switzerland and Novartis Pharmaceutical Corporation of USA, which Appellant asserts to be export of services. In the process Appellant had gathered unutilised CENVAT Credits from various inputs services in order to provide such export of services. As services were provided by the Appellant to its foreign group of companies that qualify the supplies as export of services, non-utilisation of those credits towards payment of Service Tax necessitated filing of refund application for refund of accumulated credits in every quarter, noted above, under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 05/2006 C.E. (NT) dated 14.03.2006 and it had suffered through the entire process noted above.
3. During the course of hearing of the appeals, learned Counsel for the Appellant Mr. Prakash Shah submitted that in the second round of litigation, learned Commissioner (Appeals) vide his common Order-in-Appeal dated 26.09.2019 had rejected the appeal primarily on the grounds that:
(i) Rule 6(1) of CENVAT Credit Rules specifically bars availment of CENVAT Credit of inputs/input services used in manufacture of exempt goods/ providing of exempt services;
(ii) Question of refund under Rule 5 of the CENVAT Credit Rules would arise only when output services are taxable and referring to the Hon’ble Delhi High Court judgement passed in Lally Automobiles Ltd. Vs. Commissioner reported in 2018 (17) GSTL 422 (Del.), he noted that Appellant had not rendered any specific discernible services, which are taxable so as to entitle it to avail CENVAT Credit;
(iii) Export invoices of Appellant did not contain description of the services and abbreviations contained only generic terms like “TS”, “DMPK”, “CDM” which cannot be equated with any specific activity in terms of service agreement or services as defined under Section 65 of the Finance Act, 1994.
3.1 On these aspects the arguments of learned Counsel for the Appellant is that export invoices clearly indicate that Appellant had provided ITSS which is defined under Section 65(105)(zzzze) read with Section 65(53a) of the Finance Act, 1994 and BSS under Section 65(105)(zzzq) read with Section 65(104c) as defined during the relevant time and those are taxable services but Appellant was not paying Service Tax as it was exporting the services on bond. The same fact has been reflected in the agreement and in the ST-3 returns which were never challenged by the Department and nature of services provided by the Appellant remaining undisputed, legality of the classification cannot be questioned at the time of refund by the refund sanctioning authority. He further submitted that invoices containing abbreviations were the true reflection of the list of services it described in the service agreement wherein full forms are available and he brought out some illustrations by saying that “CMD” mentioned in the sample invoice stands for “Clinical Drug Supply Management” (shown in the agreement) and “TS” in the invoices stands for “Technical and Clonal Support” etc. (as found reflected in the page 24 of the appeal memo). He refuted the stand taken by the Commissioner (Appeals) in saying that all invoices are containing narration of the services rendered and his findings that in some invoices only the dollar amount is figuring is untrue for the reason that learned Commissioner (Appeals) had erroneously considered the invoice format (as to how an invoice should look like) annexed to the services agreement as invoice itself and made such an observation. His further submission is on the judgment of the Hon’ble Delhi High Court relied upon by the Commissioner in the case of Lally Automobiles Pvt. Ltd., cited supra that has upheld by the Hon’ble Supreme Court which he stated to have no relevance to the facts on hand since ‘trading activities’ which were considered as ‘sale’ or ‘deemed sale’ were being dealt in that judgment and the same is unrelated to the case of the Appellant. In citing precedent case laws on the issue of admissibility of CENVAT Credit on export of services in the case of mPortal India Wireless Solution Private Limited reported in 2012 (27) STR 134 (Kar.) that has been followed consistently by this Tribunal in the case of KPIT Cummins Infosystems Ltd. Vs. Commissioner of Central Excise, Pune-I reported in 2013 (32) STR 356 (Tri. -Mumbai), AXA Business Services Pvt. Ltd. Vs. Commissioner of Service Tax, Bangalore reported in 2017 (49) STR 556 (Tri. -Bang.), Capgemini Technology Services India Limited Vs. CCE & CST, Bangalore Service Tax–I, reported in 2022 (2) TMI 559 – CESTAT, Bangalore, Zenta Private Limited reported in 2012 (284) ELT 45 (Tri.), he argued that it has been categorically held in those judgements that even the export of services including export of software services are not taxable services still refund of CENVAT Credit cannot be denied to the assesse and in no circumstances such refund can be denied by the Adjudicating Authority in going into re-classification of services without serving a show-cause notice and initiating a separate proceeding against the Appellant for recovery, for which the order passed by the Commissioner (Appeals) is unsustainable in both law and facts. He relied upon the judgements of this Tribunal passed in the case of CST, Mumbai-II Vs. Evonik Energy Services reported in 2016 (43) STR 137 (Tri. -Mum.), JFE Steel India Pvt. Ltd. Vs. Commissioner of CGST, Gurugram reported in 2021 (44) GSTL 292 (Tri. -Chan.), Qualcomm India Pvt. Ltd. Vs. Commissioner of Customs, Central Excise & Service Tax, Hyderabad –IV reported in 2002 (43) GSTL 402 (Tri. -Hyd.), Microsoft Global Services Centre (1) Pvt. Ltd. Vs. Commissioner of Customs, Central Excise & Service Tax, Hyderabad-IV reported in 2021 (44) GSTL 264 (Tri. -Hyd.), Commissioner of Central Excise Delhi & Delhi-II Vs. Convergys India Services Pvt. Ltd. 2017 (48) STR 173 (Tri.-Chan.), Sai Adventium Pharma Ltd. Vs. CCE, Cus. & ST, Hyderabad-IV reported in 2016 (45) STR 185 (Tri. -Bang.), M/s. M & G Global Services Pvt. Ltd. vs. Commissioner of CGST & Central Excise, Mumbai reported in 2023 (3) TMI 571 – CESTAT Mumbai, M/s. Quantum Advisors Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, Mumbai reported in 2023 (3) TMI 576 – CESTAT Mumbai to support his stand.
4. In response to such submissions learned Authorised Representative for the Respondent-Department Mr. Anand Kumar submitted that those 15 refund applications were initially dealt at Hyderabad unit of the Service Tax Department and after being remanded for de-novo consideration, the same got transferred to Mumbai-III Commissionerate because of centralised Excise Registration obtained by the Appellant and the Commissioner (Appeals) at Mumbai in his detailed order had rejected the Appellant’s refund claim on the ground that it was not providing any taxable service for which they are not eligible for refund of CENVAT Credit allegedly used for export of non-taxable services. He further submitted that Notification No. 05/2006-C.E. (NT) dated 14.03.2006 and Export of Service Rules, 2005 clearly restrict the benefit of refund only to the export of taxable services and Rule 5 of the CENVAT Credit Rules also states that service provider who provides output service which is exported without payment of Service Tax shall be allowed to get refund of CENVAT Credit only under certain conditions. Further, with reference to Rule 6(a) of the Export of services Rule and Notification No. 2005/06-CE (NT), he submitted that inputs and input services used for providing output services that were being exported were subjected to the conditions/restrictions of Export of Service Rules, 2005 or Central Excise Rules, 2002 as set out in the appendix and under Clause 3 of Export of Service Rules, 2005, taxable services are enumerated and the Appellant’s alleged services are not covered therein for which interference in the order passed by the Commissioner (Appeals) is uncalled for.
5. We have gone through the case record and taken note of the submissions made before us. The said two services namely “ITSS” and “BSS” which are reflected in the ST-3 returns including sample returns annexed at page 109 and 112 of the appeal memo are taxable services and only because of the benefits of Notification No. 09/2005-ST was availed by the Appellant that provided exemption for export of services, Service Tax was not payable. However, it was held by Hon’ble Karnataka High Court in the case of mPortal India Wireless Solution Private Limited reported in 2012 (2) STR 134 (Kar.) that CENVAT Credit is available though the export of service is not a taxable service. Further, the findings of the Commissioner (Appeals) that Appellant’s case fits into the ratio of Lally Automobiles Pvt. Ltd. judgement is untenable since it was passed in respect of “trading” which is not at all a service as per Article 366(29A) of the Constitution of India and, therefore, considered as exempted from Service Tax purview. The other ground of rejection of refunds relates to the description contained in the invoices which are admittedly in short forms which is not at all tenable for the reason that neither any query was made during personal hearing to find out the full forms of those descriptions given in the invoices nor the kind of services rendered in the service agreement was tallied with to ascertain the truth. Be that as it may, it is a settled position of law after pronouncement of the mPortal India Wireless Solution Private Limited judgment that export of software services even if not considered as taxable services, the exporter shall be entitled to get refund of CENVAT Credit which cannot even be denied on limitation ground apart from the fact that attempt for re-classification at the time of deciding on the refund application without a show-cause notice demanding duty followed by a proper adjudication process is untenable in law, in view of the decisions noted above including that of Commissioner of Service Tax, Mumbai Vs. Evonic Energy cited supra. It would not be out of place to mention here that neither Rule 5 of CENVAT Credit Rules nor Notification No. 05/2006-CE (NT) nor even export of service Rules, 2005 had made any specific reference to the fact that services are to be taxable service so as to avail CENVAT Credit for the reason that Rule 5 only provides that output service which is exported without payment of Service Tax would be allowed refund of CENVAT Credit and export without payment of tax cannot be equated with taxable service only because of the fact that such export was made under bond. Further, such provision is made solely for the manufacturer for which it cannot be applied straight away to export of services as explanation appended to it indicates that export of service means a service which is provided as per Rule 6(a) of the Service Tax Rules and 6(a) is brought into the Statute book w.e.f. 01.07.2012 i.e. much after the period under dispute. More importantly appendix to Notification No. 05/2006-CE (NT) permits output service to be exported by following the procedure laid down in the Central Excise Rules, 2002 or in the Export of Service Rules, 2005 and not solely on Export of Service Rules, 2005. Even so, under sub-Rule 3 of Export of Service Rules, 2005 taxable services are defined and the services rendered by the Appellant are not included therein but sub-Rule 4 has made it clear that any service which is taxable under Clause 105 of Section 65 of the Act, may be exported without payment of Service Tax. In other words, the services rendered by the Appellant are defined as taxable services under 65(105) of the Finance Act, 1994 but for the purpose of export only they were allowed to export the same without payment of Service Tax but that by itself would not put the services under the category of unentitled service, so as to deny CENVAT Credit and consequential refund to the Appellant. Hence the order.
THE ORDER
6. Both the appeals are allowed and the order passed by the Commissioner of GST and CX (Appeals-I), Mumbai vide Order-in-Appeal No. NA/GST & CX/A-I/MUM/186-187/19-20 dated 26.09.2019 is hereby set aside. Appellants are entitled to get refund of Rs.6,84,91,885/- + Rs.13,00,32,070/- with applicable interest and the Respondent-Department is directed to pay the same within three months of receipt of this order.
(Order pronounced in the open court on 30.08.2023)
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