EY Tax Alert. Executive summary

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1 24 September 2014 EY Tax Alert Bangalore CESTAT decides on various issues relating to refund under Rule 5 of CENVAT Credit Rules, 2004 through common interim order in batch of appeals Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. This Tax alert gives an update on the recent order passed by Bangalore CESTAT in which the Tribunal decided on nearly 192 cases in a batch, by common order involving issues relating to refund of CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004 (CCR). Issues dealt with in the order include eligibility of input service, denial of CENVAT credit on the basis of nexus and its correctness, non-fulfilment of conditions contained in the notification prescribing conditions, limitations and safeguards in relation to refund claims, defects in documents etc.

2 Background and facts In order to reduce pendency of appeals, Bangalore CESTAT vide Interim Order No. 79 to 152 / 2014 dated 18 September 2014 decided the batch of appeals involving common issues relating to refund claim under Rule 5 of CCR and relevant notification 1 issued, prescribing conditions, limitations and safeguards in relation to such refund claims. Summary of issues and Tribunal s decision on those issues are discussed below - Issues discussed and Tribunal Ruling thereon Words used in appearing in Notification for refund giving restrictive meaning to input services Tribunal held that the words used for were retrospectively substituted for the words used in by the Government and hence, direct nexus with output services need not be proved. Tribunal referred to various precedents 2 to support the view. Place of removal for export of goods Tribunal, basis its various earlier decisions, held that wherever exports have taken place on FOB basis, the place of removal has to be considered as port / airport / land customs stations and accordingly, services utilized upto such place would be eligible as input service. Whether refund can be allowed prior to 14 March 2006 when there was no notification for refund? Citing the judgment in the case of WNS Global Services 3 and on plain reading of Rule 5 before amendment, Tribunal held that refund of unutilized CENVAT credit is allowable to manufacturers as well as output service providers even before 14 March Can CENVAT credit be taken by 100% EOUs given that finished goods are exempt? Tribunal took a note of amendment made in CCR after 10 September 2004 and Circular no. 54/2004-Cus. dated 13 October 2004, which clarified that CENVAT credit can be taken by 100% EOUs. Can the activity of provision of service in India be considered as export for the purposes of refund? Tribunal cited the clarification issued by CBEC vide Circular No. 111/5/2009-ST dated 24 February 2009 in which it was clarified that in case of recipient based services as per Export of Service Rules, 2005, it is possible that even when all the relevant activities take place in India, it will still be treated as export of service so long as benefits of these services accrue outside India. Refund claims should be decided based on such clarification. Nexus between the input service and output service In this issue, Tribunal directed the adjudicating authorities to follow the decision in the case of KPMG 4 wherever facts are similar to that case. In KPMG ruling, it was decided that the way definition of input service is worded; it becomes clear that direct nexus need not be proved with output service. Bombay HC took similar view in the case of Ultratech Cement 5. 1 Notification No. 5/2006-CE(NT) dtd. 14 March 2006 as amended by Not. No. 07/2010-CE(NT) dtd. 27 February i. Bangalore Tribunal s final order no /2013 dated 9 October 2013 passed in the case of CE Gloves ii. mportal India Wireless Solutions (P) Ltd. v. CST, Bangalore [2012 (27) STR 134 (Kar.)] Kar. HC iii. CCE Bangalore v. Stanzen Toyotetsu India (P) Ltd. [2011-TIOL-866-HC-KAR-ST] 3 CST Mumbai V. WNS Global Service (P) Ltd. [2011 (22) STR 609 (Bom.)] further followed in Caliber Point Business Solutions Ltd. V. CCE, Belapur [2008- TIOL-693-CESTAT-MUM] and CCE, Hyderabad-IV V. Deloitte Tax Services India Pvt. Ltd. [2008-TIOL- 629-CESTAT-Bang.] 4 [2014 (33) STR 96 (Tri. Delhi)] 5 C. CE. Nagpur V. Ultratech Cement Ltd. [2010 (20) STR 577 (Bom.)]

3 Should Foreign Inward Remittance Certificates (FIRC) be produced specifically for each invoice Tribunal decided that what is required to be established by an exporter is that consideration is received in foreign currency in respect of invoices raised by him and it is not necessary that each FIRC should have reference to separate invoice. Can clearances to 100% EOUs be considered as exports? The issue is no longer res integra and held in some of the precedents 6 wherein it was decided that clearances made to 100% EOU would be treated as exports and accordingly refund would be admissible. Should proof of payment of Service Tax by service provider be submitted? Tribunal held that proof of payment of service tax by service provider or invoices issued in terms of Rule 4A of Service Tax Rules, 1994, by foreign service provider are not the requirements which are to be fulfilled in the notification. CENVAT credit without registration It is already decided that registration with department as manufacturer or service provider is not a pre-requisite for claiming the CENVAT credit 7. Even Rule 3 of CCR provides that a manufacturer of final products or an output service provider shall be allowed to take credit without there being any mention of the word registered. receipt and accounting of the goods in books. Cases where output service is not taxable There appears to be no such restriction that output service or goods should be taxable. According to the decision in the case of mportal India 7 and KPIT Cummins 8, even if the service exported is not taxable, still the assessee cannot be denied CENVAT credit and its refund thereon. Similar view in respect of exempted finished goods is taken by Bombay HC 9. Whether time limit prescribed in section 11B of Central Excise Act, 1944 is applicable to refund under Rule 5 of CCR? Tribunal held that Section 11B is made applicable to Service tax matters; hence provisions of section 11B as inserted in Notification No. 5/2006 for the purpose of limitation for filing refund claim would accordingly be applicable. Relevant date for filing refund claim- After considering the decisions laid down in the case of GTN Engineering 10 and Hyundai Motor India 11, Tribunal held that for the purpose of calculating limitation in respect of claim for refund of tax paid on input services, the relevant date should be the date of consideration. Condonation of omissions in documents as per the Rule 9 of CCR Wherever documents are defective but the conditions are not mandatory as per the provisions of Rule 9 of CCR or defects are curable by legal precedents, refund claims in such cases need to be considered applying provisions of Rule 9(2) i.e. subject to satisfaction of adjudicating authority regarding proper 6 C. CE & C. V. NBM Industries [2012 (276) ELT 9 (Guj)] and C.CE. V. Shilpa Copper Wire Industries [2011 (269) ELT 17 (Guj)] 7 mportal India Wireless Solutions (P) Ltd. v. CST, Bangalore [2012 (27) STR 134 (Kar.)] Kar. HC 8 KPIT Cummins Infosystems Ltd. V. CCE [2013 (32) STR 356 (Tri)] 9 Repro India Ltd. V. Union of India [2009 (235) ELT 614 (Bom.)] 10 CCE V.GTN Engineering (I) Ltd.[2012 (28) STR 426 (Mad.)] 11 Hyundai Motor India Engineering (P) Ltd. V. CCE Hyderabad [2014-TIOL-1034-CESTAT-BANG]

4 Comments The interim order of Bangalore Tribunal comes as a sigh of relief for taxpayers in the concerned jurisdiction as it lays down the broad principles and parameters for deciding cases involving rejection (on one or the other pretext) of refund claims under Rule 5 of CENVAT Credit Rules, It is a welcome step on the part of Tribunal which will not only help taxpayers but will also provide guiding principles to adjudicating authorities to decide the refund cases in a speedy manner.

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