Custom, Excise & Service Tax Tribunal
Novartis Healthcare Pvt Ltd vs Hyderabad-Iv on 21 February, 2025
(1)
ST/2136 & 3009/2012
ST/27543/2013
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench - Court No. - I
Service Tax Appeal No. 2136 of 2012
(Arising out of OIO No. 16/2012-Adjn (Commr) ST dt.26.04.2012 passed by Commissioner
of Customs & Central Excise, Hyderabad-IV)
M/s Novartis Healthcare Pvt Ltd
No.6, Raheja Mind Space, Sy No.64, Hitech City, ......Appellant
Madhapur, Hyderabad - 500 081
VERSUS
Commissioner of Central Tax
Hyderabad - IV
Posnett Bhawan, Tilak Road, Ramkoti,
......Respondent
Hyderabad, Telangana - 500 001 with Service Tax Appeal No. 3009 of 2012 (Arising out of OIO No. 38/2012-Adjn (Commr) ST dt.03.08.2012 passed by Commissioner of Customs & Central Excise, Hyderabad-IV) M/s Novartis Healthcare Pvt Ltd Sy No.83/1, Plot No.2, Raidurg Panmaktha Village, ......Appellant Serlingampalli Mandal, Hyderabad - 500 032 VERSUS Commissioner of Central Tax Hyderabad - IV Posnett Bhawan, Tilak Road, Ramkoti, ......Respondent Hyderabad, Telangana - 500 001 and Service Tax Appeal No. 27543 of 2013 (Arising out of OIO No. 32/2013-Adjn (Commr) ST dt.15.05.2013 passed by Commissioner of Customs, Central Excise & Service Tax, Hyderabad-IV) M/s Novartis Healthcare Pvt Ltd No.6, Raheja Mind Space, Sy No.64, Hitech City, ......Appellant Madhapur, Hyderabad - 500 081 VERSUS Commissioner of Central Tax Hyderabad - IV Posnett Bhawan, Tilak Road, Ramkoti, ......Respondent Hyderabad, Telangana - 500 001 Appearance:-
Shri M.H. Patil, Advocate for the Appellant. Shri V. Srikanth Rao, Authorized Representative for the Respondent.
Coram: HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL) (2) ST/2136 & 3009/2012 ST/27543/2013 FINAL ORDER No. A/30053-30055/2025 Date of Hearing: 02.01.2025 Date of Decision: 21.02.2025 [Order per: A.K. JYOTISHI] M/s Novartis Healthcare Pvt Ltd (hereinafter referred to as the Appellant) are in appeal against OIO dt.26.04.2012 (Appeal No. ST/2136/2012), against OIO dt.03.08.2012 (Appeal No. ST/3009/2012) and against OIO dt.15.05.2013 (Appeal No. ST/27543/2013) (impugned orders). Vide the said impugned orders, the Adjudicating Authority has denied certain Cenvat credit in respect of input services used for exporting output services on various grounds including their output service not being a taxable service as also on account of input services not having any nexus with the output service.
2. Learned Advocate for the appellant submits that they are providing various output services like 'Business Support Services' (BSS) and 'Information Technology Software Services' (ITSS) and for that they have entered into Agreements dated 15.08.2005, 01.01.2007 & 31.08.2009 with their parent company i.e., Novartis Pharma AG, Switzerland and Novartis Pharmaceutical Corporation, USA. As per the said service agreements, they were required to provide various operational support services like information technology services, clinical/analytical data management, technical & clinical support, preparation of various medical and statutory reports, clinical research service, serology & pathology service, etc. Further, in order to provide such output services, the appellants were receiving and using various input services. However, since the appellants were unable to utilize Cenvat credit on those input services as their entire output services were exported, they have claimed refund of credit attributable to output services exported by them from time to time. The refund claims filed for the period July, 2008 to March, 2012 were rejected by the Adjudicating Authority through two separate orders and upheld by Commissioner (Appeals) through common OIO dt.26.09.2019. On appeal, Mumbai Bench of this Tribunal, vide Final Order No.86269-86270/2023 dt.30.08.2023, held that services exported by the appellants are taxable services under section 65(105) of the Finance Act, 1994 and credit and/or refund is admissible. They are also relying on order passed by the Commissioner (Appeals) in (3) ST/2136 & 3009/2012 ST/27543/2013 their own case, vide OIA dt.27.04.2012, wherein, the Commissioner had held that services exported are taxable under Business Auxiliary Services (BAS), BSS & ITSS and therefore, now, since no appeal has been filed by the department, the department cannot take contrary stand that there is no nexus. Meanwhile, three SCNs dated 20.04.2011, 14.10.2011 & 19.04.2012 were issued proposing to deny credit taken on the aforesaid input services used for export of the aforesaid output services, based on the allegation that the services exported are not taxable services and learned Commissioner has upheld those allegations and denied credit in terms of impugned orders. The appellants are in appeals against these impugned orders.
3. The issue, in brief, is that the appellants were exporting certain services, which the department felt were not in the nature of taxable service. The department was also of the view that some of the input services in respect of which credit has been taken were not having any nexus and therefore, they were not eligible for taking credit on that count. The Adjudicating Authority has held that since the export invoices are not showing exact description of service being exported and as it would not be possible to arrive at the conclusion as to whether these services are taxable service or otherwise, therefore, on that count, he came to the conclusion that those services were not taxable services. Further, without going into the issue of ineligibility of input credit on account of not having any nexus with the output service, the Adjudicating Authority held that since the output service is an exempted service, therefore, no credit can be taken in respect of input services.
4. Learned AR reiterates the observations and the grounds taken by the Adjudicating Authority in the impugned orders for denying the credit and recovery of the same.
5. Heard both sides and perused the records.
6. There are broadly two issues involved in these appeals, which are as follows:-
a) Whether in the absence of sufficient documents or description in the export invoice, can the service be treated as non-taxable or exempt service as such; and (4) ST/2136 & 3009/2012 ST/27543/2013
b) If they are treated as taxable service, can the credit be allowed if there is no nexus between the input service and the output service.
7. We find that the Adjudicating Authority has examined both the issues and insofar as the first issue is concerned, the Adjudicating Authority has examined various services covered in the agreements between the appellant and their parent company. He observed that unless the export invoice reflects clear description of service, it would not be possible to come to the conclusion as regards nature of the service. Further, he has also examined the claimed services within which the services contained in the agreements would fall i.e., ITSS and BSS. Since there were no details available in the invoices, the proper classification could not be arrived at and held that unless the output service is taxable service classifiable under one of the taxable services, it would be in the category of non-taxable service or exempt service. The generic reference and description given in the export invoice did not help in arriving at the proper classification. So, essentially, the Adjudicating Authority found that as there are no details available to decide as to what would be the proper classification nor the appellants were able to justify the services in respect of which the credit has been taken or the exports made were covered under specific services, he treated the entire services exported as that of non-taxable services. He has also relied on the fact that there is a statutory requirement under Rule 4A that detailed description, classification and the value of taxable service, inter alia, provided or to be provided are required to be shown in the invoice and in the absence of the same, that would not be proper invoice and therefore, on the strength of the same, no service classification can be determined. We also note that non-adherence to some of the procedural requirements like non-furnishing of exact description of service or non-furnishing of SOFTEX forms, etc., in itself cannot become a ground for denying substantive right.
8. Insofar as the second issue as to whether there is nexus between the input service and output services is concerned, the Adjudicating Authorities have not at all dealt with this issue by merely relying on the fact that in the absence of proper classification as taxable service, service exported would be considered as exempted service and on that count itself, no credit can be availed.
(5)ST/2136 & 3009/2012 ST/27543/2013
9. We find that as regards the first issue i.e., whether the services exported by the appellants can be considered as taxable service or as exempt service, in the fact of the case, the Adjudicating Authorities have gone by the description in the export invoices and were not able to classify or correlate those services with the agreements giving detailed description of such services and therefore, held that these services are to be treated as non-taxable/exempt services. We find that admittedly, there is an agreement in terms of which many kinds of services are required to be provided to their parent company. However, there has not been any attempt to classify those services under the category of one or more taxable services, after going through the details of the said services. Therefore, apart from the services being claimed under BSS or ITSS, there could be possibility that some of these activities may not at all be in the nature of service or they would probably fall under some other service head. We also find that there is a clear provision under Rule 4A to give, inter alia, specific description of the services irrespective of whether it is meant for consumption within the country or abroad. Since they have used only abbreviated/short terms in their export invoices, the Adjudicating Authority was correct that it would not be possible for them to classify the same and since the appellant failed to convince the department that their export services are taxable, the next question would be whether the credits would also be not admissible in view of the fact that the services were exempted services, without resorting to proving any nexus or otherwise.
10. We have gone through the submissions of the appellants and we find a great deal of services are covered within the category of agreements and covered within the schedule to the agreements. Schedule-A covers operational services: development, with generic description as development. The definition itself says that 'to provide services and developmental support' and gives certain examples. Merely by going through these services, one cannot arrive at proper classification during the pre-negative list regime where each and every activity has to be classified under specific heading of taxable services. In other words, during that period, except for the specified services, which were treated as taxable services, rest of the services, which are not explicitly covered within the definition of service, were not chargeable to tax or treated as non-taxable/exempt services. Therefore, the Adjudicating Authority was right when he came to the (6) ST/2136 & 3009/2012 ST/27543/2013 conclusion that in the absence of specific details to be given in the export invoice, as also the correlation between the description given in export invoices and the details given in the agreements, it would not be possible to classify the services. At the same time, we feel that some of these activities would definitely be in the nature of service falling under certain taxable service and therefore, to that extent, they cannot be treated as non- taxable/exempt services.
11. We also find that the appellants have relied on the order of Mumbai Bench of this Tribunal in their own case (supra). The issue before the Tribunal Mumbai was whether the rejection of the refund claimed under Cenvat Credit Rules read with Notification No.05/2006-CE (NT) dt.14.03.2006 was correct or otherwise. The issue was decided in favour of the appellant by relying on various case laws including mPortal India Wireless Solution Pvt Ltd [2012 (27) STR 134 (Kar.)], wherein, it was held that even if the export of software services is not considered as taxable service, the exporter shall be entitled to refund of Cenvat credit, which cannot be denied even on limitation ground. Therefore, the issue is not exactly same as the issue covered within the purview of these three appeals. There the issue was whether the export of ITSS was taxable or otherwise. In either case, refund shall be admissible in terms of various judgments, whereas, in the present case, it is the eligibility of the credit itself, which is under challenge.
12. We find that in this order, the issue of rejection of refund claim was examined where at Para 7 of OIA dt.27.04.2012, certain submissions were made by the appellant. The Commissioner had made an observation that "I find force and reasons in the contention of the appellant. Prima facie, it appears that the lower authority has ignored the appellant's vital submissions and the documents which the appellant considered in their favour and rejected their claim without justifiable reasons and findings. He had gone beyond the scope of the show cause notice which is in violation of principles of natural justice. Therefore, I find it appropriate that the issue is re-examined afresh ensuring principles of natural justice." Therefore, this is not the finalization of classification as proposed/submitted by the appellant, rather only an observation by the Commissioner (Appeals) and the entire (7) ST/2136 & 3009/2012 ST/27543/2013 matter was remanded back to the Original Authority for reexamination and to be decided on merit.
13. We also note that since they have already held that the export service is non-taxable/exempt service, they have not gone into the issue of ineligibility on account of nexus between input and output services. We have seen the nature of services in respect of which the credit has been taken and find that most of these services would be eligible, in view of settled legal position. However, since this issue has not at all been discussed by the Adjudicating Authority even when the same was one of the grounds for denying the credit in the SCN, we feel that to that extent the impugned orders are non-speaking. More so, when some of these services may be having nexus, while some of them may not at all be having nexus with the output service. Therefore, there are two issues, which need to be redetermined. Firstly, on going through the detailed description in the agreements and its proper classification under proper services, if any of these activities are not covered in their specified service category then to that extent they will not be eligible for taking credit at all. In respect of services otherwise found as taxable service, irrespective of whether the description given in the export invoice was cryptic or otherwise, the input services' nexus will have to be decided in relation to output services for allowing credit.
14. Therefore, all these three appeals are allowed by way of remand with direction that the Adjudicating Authority will go through the submissions both on the grounds of proper classification as well as the nexus before arriving at the final demand in case of inputs not having been considered eligible either on account of nexus or on account of concerned export service not being taxable service.
15. Appeals are allowed by way of remand.
(Pronounced in the Open Court on 21.02.2025) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Veda