By TIOL News Service

MUMBAI, FEB 15, 2013: THE appellant are manufacturers of paper and paper products. They availed CENVAT Credit of the service tax paid on CHA Services, Shipping Agent Services and Clearing & Forwarding agent services and courier agency services amounting to Rs. 71,126/-.

The department issued a notice dated 18/04/2011 wherein they proposed to deny the CENVAT Credit on the ground that the input services were availed in respect of an export transaction and vide notification No.17/2009-ST dated 07/07/2009 these services were exempted and, therefore, the appellant should have availed the exemption rather than paying duty and taking CENVAT Credit.

The CENVAT Credit was disallowed on two grounds -

+ the benefit of notification No. 17/2009-ST should have been availed;

+ the services have no nexus with the manufacturing activity undertaken by the appellant and, therefore, they are not eligible for the refund.

The lower appellate authority rejected the appeal and hence the appellant is before the CESTAT.

It is submitted that there is no condition stipulated in Notification No.17/2009-ST that it should be availed compulsorily by the exporter; there is no bar in the said notification preventing an exporter from availing CENVAT credit on service tax paid thereon and claiming refund later; that one of the conditions for availing the exemption is that CENVAT credit on service tax paid on input services should not have been taken under the CENVAT Credit rules, 2004, which implies that the assessee can either avail the exemption under the notification or avail credit under the CENVAT Credit Rules. Regarding eligibility of the services, in their own case the Bench had vide order No. A/112/12/SMB/C-IV dated 11/05/2012 held them to be Input services and allowed the credit, the appellant submitted.

The Revenue representative reiterated the findings of the lower authorities.

The Bench observed -

"5.1 Notification No. 17/2009 dated 07/07/2009, exempts the taxable services received by an exporter of goods and used by him for export of goods. This exemption is subject to certain conditions and one of the conditions stipulated is that no CENVAT credit of service tax paid on the specified service used for export of the said goods has been taken under the CENVAT Credit Rules, 2004.This condition clearly implies that in a case where the exporter avails CENVAT credit, he cannot avail the benefit of exemption. There is no bar stipulated in the said notification that he cannot avail CENVAT credit and the availment of CENVAT credit will be entirely governed by the terms and conditions of the CENVAT credit rules. The fact that input or input services, on which duty/tax has been paid, have been received and used in the manufacture of excisable goods which have been exported is not in dispute. In the show cause notice, the only ground taken for denying the credit is that benefit of notification No.17/2009 should have been compulsorily availed by the exporter manufacturer. The said notification being a conditional exemption notification, it is for the manufacturer to decide whether to avail the said exemption or not. Thus there is no merit in the department's contention the appellant should have availed the benefit of notification No.17/2009.

5.2 As regards the other contention that the services in this case, namely, CHA service, C&F service, Shipping Agent's services and courier service, are not eligible input services, this issue has been already considered and decided by this Tribunal in favour of the appellant in the order cited supra."

In fine, the order of the Commissioner(A) was set aside and the appeal was allowed with consequential relief.

In passing: The department seems to be obsessed with this "duty payment on own volition" concept which had found fervor almost two decades ago. Innumerable judgements in favour of the assessee on the issue fail to find a taker in department circles and this leads to litigation for the sake of litigation. Section 5A(1A) of the CEA, 1944 clearly mentions that it comes into picture only when the goods are exempted "absolutely". And by the way, did this section also become applicable to service tax notification!

(See 2013-TIOL-297-CESTAT-MUM)