ST Refund - Marketing fees paid to foreign service provider & ST paid on reverse charge basis - same is input service as defined in rule 2(l) of CCR - refund is available since appellant is unable to utilize credit - Appeal allowed: CESTAT
By TIOL News Service
MUMBAI, FEB 06, 2013: THE appellant is engaged in providing Renting of Immovable property services, Customized Software Development Services, etc. They are also paying service tax as recipient of Business auxiliary service. These services were used in providing software development services which was exported.
As the appellants were unable to utilize the full CENVAT credit on these input services leading to accumulation of CENVAT credit, they filed a refund claim amounting to Rs. 30,92,604/- for the period from 01/10/2008 to 31/12/2008 in terms of Rule 5 of the CCR, 2004 read with Notification No.5/2006 CE (NT) dated 14/03/2006.
The refund sanctioning authority sanctioned refund claim amounting to Rs. 8,82,229/- and rejected the refund amounting to Rs. 22,10,375/-, which pertained to marketing fees paid by them to their foreign service provider whom they had engaged for promotion of their products abroad. On these services they had discharged service tax liability on reverse charge basis under business auxiliary service. The authority also rejected the refund claim of service tax credit on garden maintenance charges, gas filling and servicing charges, lightning toran for Navaratri festival.
The appellant preferred an appeal before the lower appellate authority, who held that garden maintenance services, gas filling and serving charges, lighting toran for Navaratri festival do not have any nexus with the output services exported and, therefore, they cannot be considered as input service under Rule 2 (l) of the CCR, 2004. As regards the marketing services on which refund was claimed, the appellate authority held that no proof was furnished by the appellant evidencing that these services were used as input service for the services exported. Accordingly, he upheld the rejection of the refund claim filed by the appellant.
Against this order, the appellant is before the CESTAT.
While not disputing the rejection of refund claim in respect of garden maintenance, gas filling and servicing charges and lighting toran for Navaratri festival, with respect to the marketing fees, the appellant submitted that they had engaged Syntel Inc., USA, (which is a company registered in USA) to market/sell software services developed by the appellant. Inasmuch as for this service received they had discharged service tax liability under Section 66A of the Finance Act, 1994 on reverse charge basis. It is further submitted that for the subsequent period, the department has allowed CENVAT credit of service tax paid on marketing services under the category of BAS and there is no issue in this regard; therefore, the appeal may be allowed to the above extent. Before the Bench, the appellant also produced a copy of the agreement entered into with the foreign service provider in respect of the marketing arrangements and also a copy of the order passed by department allowing refund claim in this matter for the subsequent period.
The Bench observed -
"6. We have carefully considered the submissions made by both the sides. We have also perused the agreement relating to marketing fees. As per the "Business Associates Agreement" entered into by the appellant with Syntel Inc., USA has agreed to provide marketing services in relation to software services developed by Syntel International Pvt. Ltd., India and Syntel Inc., USA has to identify customers in USA and make efforts to get the customers and assist Syntel (India) in respect of sales in USA by providing sales and technical information and other materials regarding Syntel services including sales promotion literature or brochures. It is for rendering these assistance, the consideration is paid. The consideration is paid in convertible foreign exchange and the appellant has discharged the service tax liability on reverse charge basis under Section 66A of the Finance Act, 1994. The said services squarely fall under the category of "business auxiliary service" as defined in Section 65 (19) and the taxable service covered under Section 65 (105) (zzb) of the Finance Act 1994. Such service falls within the definition of input service under Rule 2 (l) of the CENVAT Credit Rules, 2004. Therefore, the appellant is rightly entitled for the credit of the service tax paid on "business auxiliary service" and they are also eligible for refund in case they are unable to utilize the credit availed. It is also noticed that the department for the subsequent period has allowed refund of service tax paid on the said business auxiliary service for the period 01/07/2009 to 30/09/2009 vide order of refund dated 21/05/2010."
In fine, the Bench allowed the refund of service tax paid on "business auxiliary service" on reverse charge basis, which was rejected by the lower authority.
The appeal was thus allowed with consequential relief.
(See 2013-TIOL-224-CESTAT-MUM)
