By TIOL News Service

MUMBAI, AUGUST 07, 2017: AGAINST rejection of their claim for refund of input service tax which remained unutilized as the appellant were exporting their output services, the appellant is before the CESTAT.

The reasons given by the lower authorities for rejecting the claims filed u/r 5 of CCR are -

+ Full consideration not received in convertible foreign exchange.

+ Output services provided do not qualify as export of taxable services as per Export of Service Rules, 2005

+ Documentary evidence not provided for export of banking and other financial services as per Rule-3 of Export of Service Rules. BCP-appellant has received consideration only for out of pocket expenses and has not received consideration for services rendered.

+ The investment manager located abroad and the appellant are related parties, having mutual interest in each others business operations.

+ Refund claim is hit by unjust enrichment as the services are not exports.

+ ST-3 return does not disclose the services exported, but discloses the expenses recovered which are more than the actual expenses. Balance sheet does not disclose the refund claim to be receivable.

+ Appellant have not produced evidence stating that remittances received is towards consideration for export of services and not only towards reimbursement of out of pocket expenses.

+ Value of CENVAT credit as per CENVAT register does not tally with the value shown in ST-3 return.

After considering the point-wise rebuttal made by the appellant with the support of case laws and the submission made by the A.R, the Bench observed thus -

++ Appellant had received convertible foreign exchange for such services remitted by the service receiver from outside India, in convertible foreign exchange, as clarified by the Reserve Bank of India (by the Exchange Control Department) vide Notification No. FEMA/14/2000-RB dated 03 rd May, 2000, under the powers conferred vide the Foreign Exchange Management Act, 1999 and thus have made Rules for remittance, in respect of manner of receipt and payment in foreign exchange, wherein Clause 3 of the Notification provides that the manner for receipt of foreign exchange by payment in Rupees from the Account of a bank situated in any country other than member Countries of Asian Clearing Union or Nepal or Bhutan. All conditions for export of service, under Export of Services Rules, 2005 have been fulfilled and impugned order is bad for holding that there is no export of service.

++ Appellant has filed sufficient documents in support of their claim of refund under the classification, ‘Banking and Other Financial Services'.

++ The appellant service provider and the recipient of service are separately registered under the company law provisions in separate countries and hence are not related persons.

++ There is no question of unjust enrichment, in the facts and circumstances of the present case where claim of refund of CENVAT credit lying unutilized has been made, under the provisions of Rule 5 of CENVAT Credit Rules, 2004.

++ Under the terms of agreement, the appellant as a service provider is entitled to receive both fees and reimbursement of expenses incurred, for rendering the service. As such, the two together from gross amount of service charges, as defined under Section 67 of the Finance Act, 1994.

++ There is proper agreement between the parties, for rendering of services by the appellant and receiving of services by the recipient of service, who is located outside India.

++ The findings of the Commissioner "Though the appellant has provided service to a foreign client from India for which payment were received from abroad, but services have been provided in relation to investment made in India" - is misconceived. The service has been used and received by the recipient of service located outside India. It is of no consequence, whether such advisory service received by the recipient located outside of India, is used recipient for making investment decision, for making investment in India.

++ Neither there is any question of unjust-enrichment, nor the refunds of CENVAT credit under Rule 5 of CCR, 2004, are hit by time bar, as no time limit has been provided for utilization of Cenvat credit, once it has been taken.

++ Adjudication orders for the period July'11 to March'12, being refund claim dated 29th June, 2012 for Rs.11,32,572/-, Rs.13,43,033/- filed on 28th March, 2013 for the period April'12 to December'12 and claim for Rs.18,48,921/- dated 29th June, 2012 for the period, April'12 to June'12 are bad, as no show cause notice was issued for these matters and as such, the adjudication orders are wholly without jurisdiction. According to the rules, service of a proper show cause notice is essential, for assuming jurisdiction to pass an order.

The impugned orders were set aside and the appeals were allowed with consequential benefits. The adjudicating authority was also directed to grant the refunds with interest within a period of 45 days.

In passing: Date of Hearing - 12/05/2015; Date of Pronouncement - 07/07/2017.

(See 2017-TIOL-2810-CESTAT-MUM)