In a major relief to the Microsoft Research Lab, the Banglore Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) reiterated that the department is not permitted to question the eligibility of CENVAT credit at the time of claiming a refund.
The appellant, M/s. Microsoft Research Lab India Private Limited is a company registered under the Companies Act and is a wholly-owned subsidiary of Microsoft Corporation, USA. They have entered into an agreement with M/s. Microsoft Corporation, the USA as per which the appellant is required to undertake Information Technology-related research and development activities. Appellant is engaged in providing Information Technology Services and Information Technology Enabled Services (ITES). Undisputedly, the said services qualify as export of service. Appellant is also registered under the Service Tax for taxable Information Technology Software Services and Business Auxiliary Services as a service provider and also registered as service recipient for taxable Manpower Recruitment Service, Sponsorship Service, Commercial Training and Coaching Service, Legal Consultancy, etc. Appellant procured various input services which were utilized in the provision of output service and tax paid thereon was claimed as CENVAT credit in terms of Rule 2(l) read with Rule 3 of the CENVAT Credit Rules. Since the services provided by the appellant qualify as an export of service, the appellant filed periodical refund claims under Rule 5 of CENVAT Credit Rules read with Notification No.5/2006-CE (NT) and Notification No.27/2012-CE(NT) dated 18.6.2012 as applicable for seeking a refund of accumulated CENVAT credit.
Mr. Mihir Mehta, the counsel for the appellant submitted that the impugned orders are not sustainable in law as the same has been passed without properly appreciating the facts and the law and the definition of ‘input service’ as provided under Rule 2(l) of CENVAT Credit Rules, 2004. He further submitted that all the disputed input services in respect of which the refund has been denied are covered by the definition of ‘input service’ as provided in Rule 2(l) of CENVAT Credit Rules and have nexus with the output service.
Mr. Mehta added that the inclusive part of the definition of the input services covers services that are used in relation to the activities like advertising, sales promotion, market research, storage, procurement of inputs, accounting, auditing, financing, recruitment, training, legal, and security services. He further submitted that various judicial precedents have held that the definition of input service is of wide purport and includes services that are in connection with or have a nexus with the output services provided.
On the other hand, the department submitted that the refund claimed by the appellant was disputed by the department as the appellant has not submitted certain documents which were asked by the original authority, and therefore, the demand of interest by the appellant is not sustainable. She also submitted that the impugned services availed by the appellant lack nexus with the output service and the refund have rightly been rejected.
The coram of Judicial Member, S.S. Garg found that find that the appellant has given detailed justification for each of the impugned services involved in these two appeals with judicial precedents, and the impugned services have been used by the appellant for rendering the output services.
The CESTAT said that the Department has not questioned the input service at the time when the CENVAT credit was taken and in the line with the decision of this Tribunal in the case of K-Line Ship Management Pvt. Ltd. vs. CGST cited wherein it has been held that the department is not permitted to question the eligibility of CENVAT credit at the time of claiming a refund. Further, in view of the clarification given by the tax research unit of CBEC vide their letter dated 16.3.2012, the amended Rule 5 of CENVAT Credit Rules, does not require correlation between the output service exported and the input service used in such output service exported. This has also been held in various decisions by the Tribunal cited supra.
Therefore, the Tribunal while following the ratio of the various decisions allowed the appeals of the appellants and hold that the appellant is entitled to refund of CENVAT credit along with interest in view of the apex court decision in the case of Ranbaxy Laboratories Ltd. vs. UOI along with many other decisions rendered by the Tribunal.
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