By TIOL News Service

MUMBAI, MAR 06, 2016: THE appellant is registered with the Service Tax department and Delhi office is also registered as an ISD. The appellant is having its operations at Mumbai, New Delhi, Bangalore and Hyderabad. Hyderabad and Bangalore unit are registered as Software Technology Park Unit. The Mumbai unit of the appellant entered into an agreement with Qualcomm Incorporated (QCOM), a company incorporated in the State of Delaware, USA for providing the marketing, promotional and other services to QCOM from Mumbai and New Delhi office of the appellant. As per this agreement, the services (business support services) which have been provided are – Identifying potential business opportunities; distributing and disseminating information on the products and services of QCOM to the wireless telecommunications industry, advising on local marketing strategies, local market conditions, and customers' views and requirements regarding QCOM's products and services; providing information on competitors, market trends and new products and services in the wireless communications market, among others.

The appellant had rendered services to QCOM located outside India during the period in question April 2009 to Sept. 2009. As the appellant is engaged in export of services, they filed application for refund of CENVAT Credit availed for the said period.

The invoice issued by Delhi Office as an Input Service Distributor (ISD) to Mumbai office has been held as bad on the ground that Delhi unit is not providing any taxable output services. Accordingly, it is held that credit of Service Tax attributed to services used in Delhi office are not eligible for distribution to the Mumbai office in terms of Rule 7 of the CCR, 2004. Consequently credit amounting to Rs.10,67,348/- & Rs.1,81,290/- (no nexus with the output service) have been denied & refund claimed u/r 5 r/w notification 5/2006-CE(NT) is rejected in part.

Before the CESTAT the appellant submitted that the finding that Delhi office is not providing any service is without any basis; that the appellant is maintaining, for administrative reasons, the accounts at its Mumbai office for both the offices and all the transactions of Delhi and Mumbai office are recorded in the Books of Account maintained at Mumbai; that they had been allowed a Centralised registration in November 2010. As for the credit denied on the ground that there is no nexus with output service, it is submitted that the said services are related to business, hence admissible.

The AR reiterated the findings of the order appealed against.

The CESTAT observed –

"5. …I hold that under the facts, the appellant is providing services from both the Delhi and Mumbai office and the accounts are centralized at Mumbai office. Further, the billing of the services and purchase is done by Mumbai office and the payments have been received regularly in foreign exchange, the disallowance of part of the input service credit is bad. I further hold that the whole amount disallowed of Rs. 1,81,290/- for lack of nexus with the output service provided by the appellant is bad and the same is held as allowable and/or admissible under Rule 2(l) read with Rule 3 of Cenvat Credit Rules, 2004. Further, in view of the admitted facts and circumstances, I hold that Delhi office have rightly distributed CENVAT Credit to its Mumbai office in terms of Rule 7 of Cenvat Credit Rules and accordingly, the disallowance of credit of Rs.10,67,348/- is set aside…."

The appeal was allowed and the adjudicating authority was directed to grant refund within 60 days.

(See 2016-TIOL-546-CESTAT-MUM)