The Chennai bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that Management, Maintenance and Repair (MMR) Service will be Treated as Exempted Service When the Service Provider did not Receive full Convertible Foreign Exchange within the Time Period Provided under Statute.
The assessee, M/s. EDAC Engineering Limited is engaged in rendering erection, commissioning and installation (‘ECI’ ) service, manpower recruitment agency service, management maintenance and repair (‘MMR’ ) service, business auxiliary service and transport of goods by road service. There is no dispute that erection, commissioning and installation services are provided to the assessee’s clients situated outside India.
The Revenue had observed that while providing ECI services to their clients abroad, the assessee had earned in foreign exchange, but however, such earnings could not be repatriated into India by the assessee.
The Revenue assumed that the assessee did not receive the full amount in convertible foreign exchange within six months from the date of provision of service or within such extended time as approved by the RBI.
The Revenue appeared to have invoked the provisions of Rule 6(8) of the CENVAT Credit Rules, 2004 and further, assumed that if the service provider did not receive full convertible foreign exchange within the period provided under the statute, then the service could be treated as an exempted service.
It was noticed that the assessee had not maintained separate accounts in terms of Rule 6(3) of CENVAT Credit Rules for the input services used in providing such exempted services, as envisaged under Rule 6(2) of the rule.
Further viewed that the assessee had not even made Cenvat debit under Rule 6(1) of the CENVAT Credit Rules, 2004 on non-remittance of foreign exchange, but had availed the entire CENVAT Credit for discharging Service Tax liability for the taxable output services. The Revenue issued a Show Cause Notice proposing inter alia as to why Service Tax should not be demanded under proviso to section 73(1) of the Finance Act, 1994, read with Rule 14(1)(ii) of the CENVAT Credit Rules, 2004. In adjudication, the original authority confirmed the proposals made in the Show Cause Notice.
It was urged that the input purely belonged to the supply of taxable services within the taxable territory of India and hence, there was no question of reversal at all. Moreover, the non-receipt of foreign exchange within the time frame would take this service out of the purview of Rule 6(3) and hence no reversal under Rule 6(3) is required. This is the content of the certificate issued by the chartered accountant, but however, the same was not considered by the lower authority.
A two-member bench comprising Mr P Dinesha, Member (Judicial) and Mr M Ajit Kumar, Member (Technical) observed that it is not as though there was a serious error for which reason the certificate of the chartered accountant was not considered. Coming to a conclusion based on assumptions and presumptions is not proper.
The CESTAT while remanding the matter for re-adjudication, directed the authority to follow the principles of natural justice by affording reasonable opportunities to the appellant to produce necessary documents and evidence in support of their stand and the appellant shall also cooperate with the adjudicating authority without seeking unnecessary adjournments.
The appeal is allowed by way of remand.
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