Custom, Excise & Service Tax Tribunal
M/S. D.E. Shaw India Software Pvt. Ltd vs Cc,Ce&St, Hyderabad-Ii on 19 April, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Bench SMB
Court I
Appeal No.ST/27103/2013
(Arising out of Order-in-Appeal No.37/2013 (H-II)S.Tax dt. 27/02/2013 passed by CC,CE&ST(Appeals-II), Hyderabad)
For approval and signature:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordship wish to see the fair copy of the Order?
4.
Whether Order is to be circulated to the Departmental authorities?
M/s. D.E. Shaw India Software Pvt. Ltd.
..Appellant(s)
Vs.
CC,CE&ST, Hyderabad-II
..Respondent(s)
Appearance
Shri Harish Bindumadhavan, Advocate for the appellant.
Shri N. Naik, Authorised representative for the respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial)
Date of Hearing:21/03/2016
Date of decision:
FINAL ORDER No._______________________
[Order per: Sulekha Beevi, C.S.]
The appellant has filed the appeal aggrieved by the rejection of refund claim.
2. The appellant is engaged in providing software development services and Business Support Services. They filed refund claim for Rs.57,58,829/- for the period October 2011 to December 2011 under Rule 5 of the CENVAT Credit Rules read with Section 11B of Central Excise Act, 1944, Export of Services Rules, 2005 and Notification No.5/2006-CE(NT) dt. 14/03/2006. The refund claim was filed on 26/09/2012 as the assesse was not in a position to utilize the CENVAT credit of service tax paid on input services during the above period.
3. The appellant was not issued any show-cause notice proposing to reject the claim. They were not given an opportunity of personal hearing also. The original authority passed the Order-in-Original dt. 24/12/2012 granting refund of Rs.52,33,074/- out of the total refund claim of Rs.57,88,829/-. The credit taken on various input services like air travel agents service, management, maintenance or repair service, Chartered Accountant service, manpower recruitment or supply agency service, commercial training or coaching services, advertising agency services to an extent of Rs.4,41,981/- was disallowed observing that there is no nexus between the input services and the output service exported.
4. Again, since there was DTA services provided by other units of the appellant, the original authority observed that CENVAT credit eligible for refund has to be restricted proportionately and the refund allowed was erroneously reduced by Rs.83,774/-.
5. The appellants filed appeal before the Commissioner(Appeals) raising the contention that principles of natural justice is violated and the impugned order passed without issuing show-cause notice and personal hearing is illegal and unsustainable. It was also by the appellant contended that input services are eligible for credit.
6. The Commissioner(Appeals) gave personal hearing to appellant. In the order impugned herein, the Commissioner(Appeals) observed that a show-cause notice ought to be issued to the appellant and also give an opportunity of personal hearing. The Commissioner(Appeals) drew reference from CBEC Circular No.21/90-CX8 dt. 04/04/1990 wherein it is stated that the claimant has to be issued a notice pointing out the deficiencies in the refund claim. On this point, the Commissioner(Appeals) relied on various judgments which held that non-issuance of show-cause notice is violation of principles of natural justice. In spite of these discussions, no finding is recorded by the Commissioner(Appeals) on this point. He proceeded further to analyse the merits of the case and then upheld the rejection of refund of Rs.4,41,981/- stating that there is no nexus between input service consumed and output services exported, by appellant. The appellant is thus before the Tribunal.
7. On behalf of the appellant, the learned counsel Shri Harish Bindu Madhavan vehemently contended that the order passed by the original authority rejecting claim is unsustainable as the appellant was not issued any show-cause notice specifying the grounds on which the refund claim is proposed to be rejected. The appellant thus did not get chance to file a defence. The non-issuance of show-cause notice cannot be viewed as a mere technical breach. In the case of CCE&Cus, Aurangabad Vs. Sidheshwar SSK Ltd. [2011(274) ELT 141 (Tri. Mumbai)], the refund claim was rejected by department without issuing a show-cause notice. The Commissioner(Appeals) set aside the order of rejection on the ground of absence of show-cause notice. The Revenues appeal against this order was dismissed by the co-ordinate Bench of the Tribunal observing that the conclusion of adjudication proceedings without issuing a show-cause notice cannot be sustained.
8. The issuance of show-cause notice puts the affected person on notice as to what is the departments case/view on the refund claim. The notice should specify the reasons on which the department proposes to reject the refund claim. By such notice, the assessee gets an opportunity to understand the grounds on which the refund is liable to be rejected. The assessee can then defend the notice by putting forward necessary evidence establishing the assessees case. Non-issuance of such a notice deprives the assessee of a fair opportunity to know the allegation as well as to put forward his defence. This is blatant violation of the principles of natural justice. The situation presented by this case cannot be resolved even by remand of the case. The unilateral order passed by the original authority so far as to the rejection of refund claim is illegal in the eye of law. The impugned order which upholds such rejection is also therefore unsustainable. An amount of Rs.4,41,981/- is rejected by both authorities below for the reason that the input services have no nexus with output services. This rejection of refund of Rs.4,41,981/- is liable to be set aside for the sole reason that no show-cause notice was issued to the appellant. The order-in-original was passed unilaterally without even granting an opportunity of personal hearing.
9. The learned AR Shri N. Naik defended the impugned order contending that though no show-cause notice was issued, the Commissioner(Appeals) had granted opportunity for personal hearing. That therefore the rejection of refund of Rs.4,41,981/- on the ground that there is no nexus for input services with the output services is valid and proper. The appellant has failed to establish that such services are necessary for providing the output services and that therefore the rejection of refund is proper.
10. I have heard both sides. The foremost issue that needs to be addressed is the non-issuance of show-cause notice. After filing of refund claim by the appellant, without conduct of personal hearing, the original authority has unilaterally decided to allow refund of Rs.52,33,074/- and reject claim of Rs.4,41,981/-. It is explained by appellant that the amount of refund allowed has been reduced by an amount of Rs.83,744/- by wrong application of formula by the original authority.
11. Admittedly, no show-cause notice was issued to the appellant specifying the grounds on which the refund claim is proposed to be rejected. No personal hearing was given at the stage of original adjudication. Thus appellant has been totally deprived of knowing the allegations or putting forward, a defence against the grounds for rejection of Rs.4,41,981/-.
12. The learned counsel for appellant, in addition has put forward the contention that the refund allowed has been reduced by an amount of Rs.83,744/- as the original authority wrongly applied the formula provided in condition 5 of the Notification No.5/2006-CE(NT) dt. 14/03/2006.
As per the clause 5, the formula is:-
Maximum refund=
Total CENVAT credit taken on inputs services X export turnover
Total turnover
(i) (A) Export turnover of taxable service = Rs.49,21,17,614
Domestic turnover of taxable service = Rs. 77,65,716
----------------------
(D) Total Turnover = Rs.49,98,83,330
----------------------
(E) Total credit taken on input services = Rs.65,58,699
Total unutilized credit on input service = Rs.57,58,829
(ii) Refund of input service credit = (E x A) / D
= 6558699x492117614
499883330
= 6456809
(iii) Amount of refund of input tax credit would be = 57,58,829
( unutilized credit or refund eligible as per
Rule 5 whichever is lower)
13. Thus as per the formula, the total credit taken (E) has to be applied to compute the refund credit. The original authority first held on merits that Rs.4,41,981/- is not eligible for refund as there is no nexus. This amount was deducted from the total claim of refund which is Rs.57,58,829/- (i.e. 57,58,829 4,41,981 = 53,16,848). This figure 53,16,848 was considered to be the eligible refund. To this amount, the original authority has applied the formula to again arrive at the eligible refund.
5316848 x 485096998 =53,33,074 492862714
14. Thus there has been in a way application of the formula twice over. Similar issue was considered by Tribunal in the case of CST, Mumbai-I Vs. Global Markets Centre (P) Ltd. [2015-VIL-136-CESTAT-MUM-ST]. The Tribunal observed that the formula used the word total CENVAT credit taken on input services. Therefore the inadmissible part of input services cannot be deducted before applying the formula. I am convinced by the argument put forth by the counsel for appellant. The proportionate reduction of Rs.83,774/- has happened due to the wrong application of formula. The impugned order to the extent of upholding the reduction of amount of Rs.83,774/- is set aside.
15. In the absence of show-cause notice, the rejection of Rs.4,41,981/- is unsustainable. For the reasons discussed in earlier paragraphs, the impugned order to the extent of rejecting the refund claim of Rs.4,41,981/- is also set aside. The appellant is eligible for refund of Rs.57,58,829/- as claimed in the refund application.
16. In the result, the appeal is allowed with consequential reliefs, if any.
(Pronounced in open court on ..) SULEKHA BEEVI C.S. MEMBER(JUDICIAL) Raja.
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