Custom, Excise & Service Tax Tribunal
Infosys Technologies Ltd vs Pune I on 17 February, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NOS: ST/121 & 122/2009
[Arising out of Order-in-Appeal No: P-I/VSK/45 & 46/2009 dated 19th February, 2009 passed by the Commissioner of Central Excise (Appeals), Pune I]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
No
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Infosys Technologies Ltd
Appellant
versus
Commissioner of Central Excise
Pune I
Respondent
Appearance:
Shri N Anand, Advocate for the appellant Shri VK Singh, Special Counsel for the respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 17/02/2016 Date of decision: 17/08/2016 ORDER NO: ____________________________ Per: C J Mathew:
Two appeals, both arising from common order-in-appeal no. PI/VSK/45&46/2009 dated 19th February 2009 of Commissioner of Central Excise (Appeals), Pune-I confirming rejection of claim of refund under Rule 5 of CENVAT Credit Rules, 2004, are before us. One refund of `45,08,047/- pertains to the period between January 2006 and March 2006 while the other for `4,49,65,933/- pertains to the period between April 2006 and March 2007. Acknowledging that some of the services rendered by appellant are exempt, the refund claim was limited to such proportion as were attributable to export of management consultancy service, management, maintenance and repair service, business auxiliary service and technical testing and analysis service. The original authority rejected the claims on the ground that no unutilized CENVAT credit could have existed as the credit column in the ST-3 returns pertaining to the period of refund claim was blank and on the ground that the services rendered were in relation to consulting engineer service which, however, not being chargeable to tax owing to exclusion of the discipline of computer hardware engineering or computer software engineering in section 65(105)(g) with separate accounts not having been maintained in consequence. The first appellate authority concurred with the lower authority on re-classification and, therefore, held that there was no scope for accumulation of credit. In doing so, the impugned order has posited that declaration of classification may be re-opened for scrutiny at any time and the assessee is not entitled to presumption of acceptance of declared classification as sufficient evidence of exigibility to tax.
2. The appellant is a unit registered under the Software Technology Park scheme in the Foreign Trade Policy. There is no dispute that, consequently, the appellant is, primarily, an exporter of services. The quantum of exports during the relevant period as well as the availment of taxable services to the extent claimed in the refund application is also not in dispute. The rejection has been actuated by the finding that the services rendered were not taxable under Finance Act, 1994 during the relevant period and, thereby, the appellant is not subject to CENVAT Credit Rules, 2004. Learned Special Counsel for Revenue insists that the services being in the nature of consulting engineer services is not taxable owing to the specific exclusion and hence contends that the two lower authorities have applied the provisions of law appropriately. Learned Counsel for appellant argues that the appellant was eligible for refund as tax had been paid on input services used in exports and as procedural infirmities cannot imperil the substantive issue of eligibility for refund.
3. A claim for refund pertaining to an earlier period did travel to the Tribunal on a former occasion against a departmental finding of ineligibility. Then, the bench was beset by difference of opinion on the eligibility for refund when the applicant renders service that is not taxable and which, on reference to third member, found convergence of opinion that maintenance or repair service rendered by appellant was not ineligible for refund but required to be remanded back for ascertainment that the claim for refund did relate to this activity. We are, in consequence, and regrettably so, bereft of that precedential wisdom in disposing off this appeal.
4. On perusal of the refund claims that are now in dispute we find that details of input services are enumerated therein. The computation has taken into account the proportionality attributable to the taxable services that were exported. Needless to say, the claims were preferred on the assumption that the credit of tax paid on input services used in rendering maintenance and repair service are eligible to be claimed as refund. We have also examined the ST-3 returns. These contain the value of services that are exported and the column for declaring value of service that is exempted is blank. It is interesting and pertinent to note that the columns in the return are distinct for value of exported services and value of exempted services with the implication that the two are mutually exclusive. It would, therefore, appear that status of being exempted or otherwise is restricted solely to services that have been rendered in the domestic territory. As has been pointed out in the show cause notice and order-in-original, the ST-3 returns do not declare the quantum of CENVAT credit; that does not, however, detract from the eligibility for refund for two especial reasons: first, the provisions of rule 5 of CENVAT Credit Rules, 2004 do not insist on such a pre-requisite and, second, that non-declaration does not, in any way, have an impact on the availment of credit which arises by reason of having borne the burden of tax and the recording of such credit.
5. Fundamental questions need answering and the particular arguments for and against the refund claim made before us shall be dealt with while arriving at our conclusions on the scope and extent of scrutiny warranted in disposing off claim preferred under rule 5 of CENVAT Credit Rules, 2004 and the appropriateness and correctness of the exercise in classification undertaken by the two lower authorities. Before we get down to examining the rival contentions in this dispute, it would not be out of place to revisit the scheme of CENVAT credit, as it affects exporters, to comprehend the perspective, as it were, that we consider essential for an outcome with some semblance of finality.
6. That taxes are not exported is almost axiomatic. Not only do they distort the international marketplace but such loading of taxes on price is inconsistent with the underlying principles of taxation. Taxes, being essentially a source of public finance, are a national phenomenon and a national characteristic that does not spill over the frontiers of a nation. It is the most visible and rampant manifestation of sovereignty and, for that very reason, is restricted to the domestic jurisdiction of the government concerned. To tax the denizens of another State shall surely sow seeds of international discord almost akin to declaration of war and is, therefore, abhorrent. It is also impossible to enforce. Even a tax on exports, as an instrument of disincentive, is borne by the entity in the taxing jurisdiction being the intended object of the tax measure. Tax embedded in exported products or services lacks even that saving grace by taxing the recipient in another jurisdiction or the incongruity of placing the tax burden on the supplier who is not the intended object of the tax either. Hence, all tax systems provide the wherewithal for neutralizing the tax incidence on exported commodities and, invariably, implement that principle through the taxing statute. Both Central Excise Act, 1944 and Customs Act, 1962 do so. The present dispute, therefore, is attributable either to a lack of clarity in the Finance Act, 1994 or the unwillingness of tax administrators to acknowledge the existence of the wherewithal. Whichever that be, it devolves on us to eliminate the impediment.
7. Appellant is in the business of information technology that, in this era of global operations, enables overseas entities to be serviced from India in furtherance of their business goals. Typically, some aspect of their activities, being programmable, are run from remote locations using hardware at both ends, a communication interface connecting the two and command systems to set a process in motion. It is generally believed to be of mutual advantage to the provider and the recipients who so contract. Typically too, the contracts subsist over quite a few years and involves, after the initial programming, upgradation and rectification to retain and enhance the efficiency of operations. The structure of recompense for such contracted work is the result of negotiations.
8. By and large, the information technology industry services overseas entities and are a major contributor to exports. As these are intangibles, the evolved systems in the other two taxing statutes do not apply. Finance Act, 1994 is a taxing statute that enables levy of tax on services enumerated in section 65(105) and empowers the Central Government to exempt any taxable service with or without conditions. In accordance with the fundamental principle of taxation, tax levy is restricted to activities within the borders and the Export of Service Rules, 2005 has been notified in exercise of, inter alia, the exemption powers under section 93 of Finance Act, 1994 to limit taxability to the borders explicitly by rule 3 therein. Owing to the peculiarity of intangibles, a segregation to determine the export aspect is necessary and the said Rules elaborate accordingly.
9. In taxing of intangibles, the impossibility of capturing the taxable event renders the tax borne on services utilized by a provider of services as an amorphous mass of unidentifiable provenance. This pool, so accumulated under the CENVAT Credit Rules, 2004, is also a resource for discharging tax liability as prescribed in section 68 of Finance Act, 1994. The same Rules prescribe the manner in which burden of tax is neutralized for exports.
10. In the context of the dispute before us, the relevant provisions of the said rule is reproduced below:
Rule 5.Refund of CENVAT credit.
Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,
(i) duty of excise on any final product cleared for home consumption or for export on payment of duty;
(ii) or service tax on output service, and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification-
Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.
Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.
Explanation: For the purposes of this rule, the words "output service which is exported" means the output service exported in accordance with the Export of Services Rules, 2005.
with output service defined in rule 2(p) as any taxable service, excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions 'provider' and 'provided' shall be construed accordingly;
11. Likewise, rule 4 and 5 of Export of Service Rules, 2005 deal with exemption of tax on output service and rebate of tax paid on output service as well as on inputs used in providing output service respectively. These are the only two provisions in existence for tax neutralization in export of services. The fundamental concept of not exporting taxes will have, therefore, to be addressed by one or the other of these Rules.
12. Export of Service Rules, 2005 has been issued in pursuance of Rule 93 and 94 of Finance Act, 1994. The former empowers the Central Government to exempt such services, as it thinks fit, from levy of tax while the latter confers the power to make rules on the Central Government and, without prejudice to the generality of powers to do so, exemption from taxes in relation to exports is among the specifically enumerated. It is, therefore, understandable that these Rules, being exemptions from levy accorded to export of services, would restrict itself to taxable services. However, considering the critical importance that exports have in policy formulation of the Central Government, there can be no doubt that some provision should exist or has been intended as the framework for refund of taxes that exported services have had to bear. Even if exported services are, themselves, exempt from taxation under Rule 4 of Export of Service Rules, 2005 or are not exigible to tax, rendering of such services may require input services that, analogous to the manner of neutralization of taxes or duties in export goods, must necessarily be refunded to preserve the integrity of prices in the international market place. Central Excise Act, 1944 does permit rebate of duty on inputs that have gone into the export of excisable goods and drawback under section 75 of Customs Act, 1962 neutralises tax or duties on inputs or services even where the exports are not excisable. It is, in the context of such an imperative in relation to export of services, that the scheme of CENVAT credit must be seen and interpreted.
13. CENVAT Credit Rules, 2004 has been notified under section 94 of Finance Act, 1994 and section 37 of Central Excise Act, 1944. These are the provision that confer general power of rule making on the Central Government. The said Rules are not relatable to any specific section of the two statutes. It is rule 3(4) of the CENVAT Credit Rules, 2004 that affords the contextual perspective thus:
3 .
(4) The CENVAT credit may be utilized for payment of
(a) any duty of excise on any final product; or
(b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or
(c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or
(d) an amount under sub rule (2) of rule 16 of Central Excise Rules,2002; or (e) service tax on any output service: CENVAT credit is not the mechanics of implementing an exemption from duty but is a manner of meeting tax obligations. The most obvious method of doing so is payment from accumulated value which, by universal acclaim, is measured as money. In India, money or rupee is accorded that statutory status as exchange for all, and any kind of, transactions by the Reserve Bank of India Act, 1934. An identical statutory recognition, though restricted to payment of duties of central excise as per section 3 of Central Excise Act, 1944 and payment of tax on services as per section 68 of Finance Act, 1944, is accorded to CENVAT Credit by the CENVAT Credit Rules, 2004. Needless to say, it has been so prescribed in the limited context of the scheme. Failure to perceive this context, and its versatility, limits the vitality of this tool, causes distortion in tax administration and relegates legislative intent to the bin of broken promises.
14. It is acknowledged that the appellant is registered under Service Tax Rules, 1994 as provider of services and it is amply clear from the statutory records that the appellant has been discharging tax liability too. Eligibility to take CENVAT Credit in accordance with rule 3(1) cannot, therefore, be denied. There is no evidence on record to show that input services to the extent recorded has not been received or that such input service is not relatable to the services for which registration has been obtained. The original authority has noted the deficiency of details of input credit in the returns; while that may be mandated in rule 9 of the CENVAT Credit Rules, 2004, disallowance or erasure of credit that has been earned is not the consequence of breach; there are specific penal provisions that may be attracted for such breach. There is, indubitably, an obligation to maintain records and any breach thereof penalized by specifically enumerated penalties that, however, do not include erasure of credit earned. No action appears to have been initiated against the appellant for alleged breach in maintenance of records. On the contrary, the meticulousness in the listing of credit claimed in the documents annexed to the claims for refund would indicate substantial, if not total, compliance. The original authority has, without valid reason, ventured to surmise that there was no credit accumulation available to the appellant. Refusal to consider the claim for refund on the ground of non-existence of credit is an act of arbitrariness.
15. With this accumulation of credit, the appellant was entitled to discharge its tax obligations but chose not to and, instead, paid the tax due on services rendered within the country through the traditional means i.e. deposit of money. That this tax was accepted into the Consolidated Fund of India is sufficient to reinforce the eligibility of the appellant as provider of taxable service to take and avail CENVAT Credit even if the adjudicating authority has, with unconcealed lack of grace, brushed it aside as lacking sanctity owing to it being a self-assessed act. That same disdain is apparent in the disinclination to acknowledge the registration which is also dismissed as a voluntary act. Apparently, in the mind of the tax administrator empowered under a taxing statute, enacted by the sovereign legislative organ of the State, with a scheme of self-declaration and assessment that the adjudication authority could well have invested his wide-ranging investigating authority into, but did not, registration and payment of tax do not suffice to evince eligibility under CENVAT Credit Rules, 2004. Rejection of entitlement to credit without considering these aspects vitiates the finding of ineligibility.
16. With the legal entitlement to accumulate CENVAT Credit thus firmly and soundly established, the next condition of being unable to utilize the accumulated credit can be examined. The two lower authorities did not even proceed to this step and we, therefore, do so. Appellant is a unit registered under the Software Technology Park scheme; the contours of this scheme are laid out in the Foreign Trade Policy and the appellant is required to be, primarily, an exporter. That it is not has not been substantiated by any evidence. We are satisfied that the monitoring mechanism of the scheme is robust and diligent enough to prevent any attempt at exaggeration of the claims of magnitude of exports vis-`-vis domestic supply. Considering the proportion of exports, inability to utilize the accumulated credit is clearly acceptable.
17. A juxtaposition of the above narration with the provisions of Rule 5 of CENVAT Credit Rules, 2004 demonstrates that the refund sanctioning authority is required to confine itself to the stipulations in that Rule while dealing with an application for refund of accumulated CENVAT credit. Unutilized CENVAT credit relating to input services availed for rendering services that are exported represents tax that should not have been collected; however, for the convenience of administering tax, exemption through refund is an accepted practice. To discover new and diverse means of frustrating that intent, particularly in the face of judicial interpretation to the contrary, is a travesty of obligations under the taxing statute. It would appear that both the lower authorities did indulge in the misadventure of re-examining the entire gamut of transactions commencing with the moment when the appellant first subjected themselves to the Finance Act, 1994. In doing so, they did not, at that stage, have the benefit of judicial decisions on the admissibility of refund to exporters of services but have relied upon their perception of CENVAT Credit Rules, 2004.
18. It is to the fundament that the two lower authorities have essayed their scrutiny: whether the input service is acceptable in the context of the operations of the appellant. According to them, it is the rendering of an output service that accords access to the scheme of CENVAT Credit Rules, 2004 and the appellant, again according to them, does not render output service as development of computer software and consulting in relation to computer software were, during the relevant time, not taxable. On this set of facts, appellant has no ground to cavil; neither can we fault them for this statement of fact. However, the relevancy of that assertion in the context of the refund claim in dispute is certainly in serious doubt. Registration under the scheme of Finance Act, 1994 is the acknowledgment of having transacted in a taxable service; should such a registrant keep itself out of the purview of the tax net, the obligation to determine liability to tax shifts to the proper officer. Having registered itself under the appropriate provision, discharged its tax liability, such as it was, and complied with the obligation to submit returns, attempting a foray of the fundament by the two lower authorities is not only not sanctified by law but is akin to excavation of the foundation after the superstructure is erected a pointless exercise that only places impediments in the operations of a contributor to the foreign exchange reserves of the country and a provider of daily bread to thousands. With the registration and subsequent compliance with Finance Act, 1994 and Service Tax Rules, 1994, the appellant is, clearly and undoubtedly, within the ambit of CENVAT Credit Rules, 2004.
19. There is no finding by both lower authorities that the said services have not been utilized by the appellant; nor is there any allegation to that effect in the show cause notice. There is neither allegation nor finding that exports have not taken place or that the proceeds were not realized.
20. On perusal of rule 5 of CENVAT Credit Rules, 2004, it is seen that this provision for refund of accumulated credit is self-contained and is not subject to any other rule or provision of the Rules. The criteria for refund are existence of accumulated credit, insufficient opportunity for utilization thereof and limiting the extent of refund to the proportion that export turnover bears to total turnover.
21. Learned Special Counsel for respondent places particular reliance on the decisions of the Tribunal in Phoenix IT Solutions Ltd v. Commissioner of Central Excise, Vishakapatnam [2011 (22) STR 400 (Tri-Bang)] and Kasturi & Sons v. Union of India [2011 (22)STR 129 (Mad)] to support the contention that maintenance was chargeable to tax only from 1st June 2007. In our opinion, these two decisions, relating as they do to taxability of a service, do not serve to sustain the impugned order which disposes off an appeal against rejection of claim for refund of accumulated credit. The only issue of consequence in this dispute is the compliance with, and implementation of, rule 5 of CENVAT Credit Rules, 2004.
22. A series of decisions of the Tribunal have held that rule 5 of CENVAT Credit Rules, 2004 is the mechanism for refund of any tax on inputs/input services used by an exporter. These have followed the affirmation of the decision of the Tribunal by the Honble High Court of Karnataka in mPortal India Wireless Solutions (P) Ltd v Commissioner of Service Tax, Bangalore [2012 (27) STR 134 (Kar)]. Taking note of the denial of eligibility for refund on the ground of non-taxability of software exports by the original authority and the appellate authority, it was held that 6. The assessee is a 100% export oriented unit. The export of software at the relevant point of time was not a taxable service. However, the assessee had paid input tax on various services. According to the assessee a sum of Rs 4,36,985/- is accumulated Cenvat credit. The Tribunal has categorically held that even though export of software is not a taxable service but still the assessee cannot be denied the Cenvat credit. The assessee is entitled to the refund of Cenvat credit. While refuting the applicability of this judgment in deciding the appeals of Apotex Research Pvt Ltd & Others v Commissioner of Customs & Others [2014-TIOL-1836-CESTAT-BANG], the stand of Revenue was made clear thus 6.12 Learned A.R. on behalf of the Revenue submitted that this decision was given in the case of 100% E.O.U. and therefore applying the same to other units which are not 100% E.O.U. was not correct. The appellant in this dispute being a Software Technology Parks of India unit, which is of the same status as 100% Export Oriented Unit in the Foreign Trade Policy, the contention of Revenue before us is, therefore, not acceptable. In KPIT Cummins Infosystems Ltd v Commissioner of Central Excise, Pune I [2013 (32) STR 356 (Tri-Mumbai)] also, the Tribunal took note of rule 5 of CENVAT Credit Rules, 2004 and notification no. 5/2006-CE (NT) dated 14th March 2006 to hold that 5.6 The appellant mPortal India Wireless Solutions P. Lt. was also a 100% EOU and the transactions undertaken are also identical in the sense that they relate to export of software. Therefore, the above decision is squarely applicable to the facts of the case before us. In any case, the object of the EXIM Policy of the Government of India is to promote exports of goods and services and not export of taxes. Service Tax being a destination based consumption tax, in the case of exports there should not be any tax burden and the tax burden, if any, is to be imposed by the Government of the country where the taxes are consumed. Otherwise, it render software uncompetitive. Keeping in view of the above policy objective of the government, it is appropriate to hold that the appellants are eligible for the refund This consistent position is reiterated in JP Morgan Services India Pvt Ltd v Commissioner of Service Tax Mumbai [2016-TIOL-378-CESTAT-MUM].
23. The statutory provision in rule 5 of CENVAT Credit Rules, 2004, as clarified supra, and the judicial findings enumerated above would make it amply apparent that the lower authorities have exceeded the scope of rule 5 to deny the refund claim of an exporting unit.
24. Before parting with this matter, we must also address the second issue for determination, viz., the scope for re-classification. Tax on services is levied at a uniform rate and the sole issue in classification is taxability or otherwise. The onus for determining taxability is squarely placed on the shoulders of the service-provider, who, better than anyone else, knows the nature of activity undertaken. We note that, in their attempt to stretch the CENVAT Credit Rules, 2004 beyond the rule affording the option of refund, the two authorities have conveniently not adverted to the scheme and contents of Chapter V of Finance Act, 1994 without which the CENVAT Credit Rules, 2004 have no locus standi in the present context. Once an entity has declared that it is liable to tax under the statutes of a State, there is no power to deny that status. We note that no such denial was even contemplated until the entity sought the invoking of provisions which the original authority was disinclined to extend. Tax is paid on self-assessment with the proper officer empowered, under section 73 of Finance Act, 1994, to determine merely non-levy or short-levy and demand the amount so evaded. The primary obligation to determine liability to tax as provider of taxable service vests with the person who renders such service with tax authorities intervening solely for prevention of evasion of tax in a self-assessment regime. In this limited dichotomy, we find no statutory provision by which a tax administrator can step in to rule that tax is not leviable except on a claim by an entity to non-exigibility. There is no allegation of short-levy of tax against the appellant and the appellant has not made a claim that they are not liable to tax. Not only do the returns make clear that they render export of service but that tax liability is discharged on the same services in India. The liability to pay tax having been accepted and the assertion that the taxable services are exempt only by reason of export having been accepted, Revenue cannot, thereafter, take a stand that the service for which registration has been taken is not taxable. The two lower authorities have erred in resorting to an act that is not within the scope of their authority under Finance Act, 1994.
25. For the reasons enumerated above, we find that the denial of refund claims does not have the sanction of law. On the contrary, appellant is entitled to refund. We, therefore, allow the appeals and direct the Assistant Commissioner to allow the refund after ascertaining veracity of computation in the claims.
(Pronounced in Court 17/08/2016) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 10 22