ST - Refund - BAS - appellant undertakes processing of data which are exported by transmitting to server - dedicated telecom lines are essential & is to be considered as Input Service - ST paid on leased telecom lines is available as CENVAT credit: CESTAT
By TIOL News Service
MUMBAI, DEC 07, 2012: THE appellants are a 100% EOU and are engaged in providing “Business Auxiliary Services”. They have filed refund claims amounting to Rs.42,76,215/- and Rs.29,90,199/- pertaining to their two units, namely, Unit no. 1 & Unit no. 2 at Nashik.
The claims were rejected by the lower authorities on the following three grounds -
+ a part of the amount on which CENVAT credit was taken was distributed by their Head Office as Input service distributor and at the relevant time the Head Office was not registered as an input service distributor and, therefore, they could not have distributed the input service tax credit.
+ the other part of the refund claim was rejected on ‘directly availed services' on the ground that the service provided by the telecom service providers who leased the telecommunication lines to the appellant and charged service tax on the same, is not an eligible input service.
+ and that the appellants have not directly exported the output service from their premises but have routed the same through telecom authorities located in India and, therefore, the definition of export is not satisfied.
The appellant is before the CESTAT and makes the following submissions -
+ prior to 2006 there was no requirement under the Service Tax Rules for registration of the Head Office as Input Service distributor for distributing the credit to the various units of the appellants and, therefore, denial of credit for this reason is not sustainable in law.
+ As regards the second ground, the same is not sustainable for the reason that the leased telephone lines through which the appellants export the output service is an input service as far as they are concerned and, therefore, they are eligible for input service tax credit.
+ In the matter of the third ground that no exports were effected directly, it is submitted that the services are first delivered to the telecom authorities in India for its subsequent transmission; that what they have undertaken is processing of data and this data has to be transmitted to the service recipient abroad electronically and for the said service, they have received payments in convertible foreign exchange.
The Revenue representative had nothing much to offer except reiterate the findings of the lower authorities.
The Bench observed -
“6. As regards the denial of refund claim of the service tax paid on leased telecom lines, the appellants are rightly entitled for Service tax credit and refund thereon for the reason that the exports are undertaken electronically and to undertake this export they need dedicated lines from their office premises to the telecom authorities, who will receive the data for transmitting the same abroad. Without these dedicated lines, the appellant cannot deliver the output service and, therefore, leasing of telecom lines by the telecom authorities is an eligible input service as defined in Rule 2(l) of the CENVAT Credit Rules, 2004.
6.1 As regards the denial of CENVAT Credit on the services Service Tax distributed by the Head Office the only ground for denial is that the Head Office was not registered as Input service distributor. However, this requirement for registration came only in 2006 and prior to this there was no such requirement. Therefore, what is required to be seen is whether the input service in respect of which the credit is taken is required for providing the output service and has nexus with the rendering of the output service. If the nexus can be established, the appellant would be rightly entitled for the credit of the service tax paid thereon.
6.2 As regards the third contention that the appellant has not exported the output service because the service was transmitted through telecom service providers in India, this view adopted by the Revenue authorities is completely irrational. When data is transmitted through electronic medium, it has to be first transmitted to a server of the telecom authorities in India and thereafter uplinked/transmitted to the foreign service recipient. In the instant case, there is no doubt that the foreign service recipient has received the output service and has made payment in convertible foreign exchange to the appellant towards the services received. Therefore, we do not find any reason to sustain the order of the lower authorities in this regard. However, we find that the payment has been received by the Head Office of the appellant unit in Bombay whereas they are situated in Nashik and the appellant needs to produce evidence to show that the payments which were received in convertible foreign exchange in Bombay related to the exports made by the units at Nashik. Subject to verification of these facts through documentary evidence, the appellant would be rightly entitled for the benefit of the refund claim. Accordingly, we remand the matter to the original adjudicating authority to consider the refund claim of the appellant, in terms of the directions given above, after giving a reasonable opportunity to the appellants to lead evidence in support of their claims.”
The appeals were allowed by way of remand.
In passing: Extending your enterprise - rationally!
(See 2012-TIOL-1799-CESTAT-MUM )
