Absence of Input Services would Adversely Impact Quality and Efficiency of Output Service Provided: CESTAT quashes Penalty u/r 15 of CCR [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004 ( CCR ) in the absence of input services would adversely impact quality and efficiency of output service provided.

The Appellant herein is a 100% EOU registered with Software Technology Park of India ( STPI ) providing services under category of “Information Technology and Software Services” ( ITSS ). They are registered with the service tax department.

The Appellant filed, with the Department, the applications in Form-A for refund of unutilized Cenvat credit under Rule 5 of CCR read with Notification No.5/2006-CE ( NT ) dated 14.03.2006, for an amount of Rs.27,67,107/- on 19.04.2010 for April to June 2009 and Rs.25,70,771/- for June to September, 2009 respectively, totalling to Rs.53,37,878/- along with copies of input service invoices, export invoices, FIRCs, Bank Statements, Export Clearance Certificates, Agreements, etc.

The counsel for the appellant submitted that the Commissioner ( Appeals ) failed to appreciate the fact that the unit is a 100% EOU working in a bonded premises and all those services on which the input credit is disallowed, are essential to run the business/providing ITSS services and that the Commissioner ( Appeals ) failed to consider Board’s Circular No.120/1/2010, dt.19.01.2010 where in it is clearly stated that the nexus needs to be liberally interpreted in a harmonious and broad manner, which also contains an exhaustive list of input services, beneficial to the Appellant.

A Two-Member Bench of observed that “We find that the Court (6) below summarily rejected the contentions of the Appellant, observing that the absence of such input services would not adversely impact the quality and efficiency of the output service provided by the Appellant/Assessee. Thus, the definition provides for credit of both types of input services, the benefit of which is either received directly or indirectly. There is no such restriction in the definition under Rule 2(l). We find that the Order of the Court below is non-speaking and cryptic.”

“We further find that no penalty is exigible in the facts and circumstances as the issue is wholly interpretational. Accordingly, we set aside the penalty imposed and retained by the Court below under Rule 15 of CCR read with Sec 78 of the Act.”

To Read the full text of the Order CLICK HERE

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