Swachh Bharat Cess Refund Clarified: CESTAT Favors Genpact, Cites No Time-Bar on Export Proceeds [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal, Chandigarh (CESTAT), has set aside the rejection of a large refund claim involving Swachh Bharat Cess and other input services, holding that the adjudicating authority must reassess the matter in accordance with the correct legal principles applicable to export of services and refund of accumulated CENVAT credit.

M/s Genpact India Private Limited, a provider of backend business process outsourcing services including book-keeping, revenue accounting, call-centre operations and IT helpdesk support, had filed a refund claim for accumulated CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-CE (NT) and Notification No. 39/2012-Service Tax, as amended. The services were exported to its overseas client, Genpact International Inc., Hungary Branch.

The refund claim amounting to ₹3,60,00,754 for the period April 2016 to September 2016 was rejected by the adjudicating authority on multiple grounds, including alleged lack of nexus between input and output services, Swachh Bharat Cess credit on invoices issued before 03.02.2016, and export invoices relating to earlier periods where foreign exchange was realized during the period of claim. The Commissioner (Appeals) upheld this rejection, resulting in the present appeal before the Tribunal.

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Counsel Prasad Paranjape for the appellant, argued that the department did not question the eligibility of CENVAT credit nor issue any proceedings under Rule 14 of the CENVAT Credit Rules, 2004, which is a statutory requirement if the revenue seeks to deny credit. It was submitted that as long as the credit is validly availed under Rule 2(l) of the CENVAT Credit Rules, 2004, the same cannot be disallowed at the refund stage by applying a different standard.

The appellant pointed out that Circular No. 120/01/2010-Service Tax clarifies that credit eligibility and refund eligibility must be tested on the same parameters. It was further argued that export of services under Rule 6A of the Service Tax Rules, 1994 is deemed complete only upon receipt of foreign exchange, and therefore there is no time-bar on realization of export proceeds. Consequently, turnover where foreign exchange was received after 21 months could not be excluded. Additionally argued that even assuming rejection was proper, the appellant would be entitled to re-credit under Notification No. 27/2012-CE (NT) and under Section 142 of the Central Goods and Services Tax Act, 2017.

The Department represented Aniram Meena and S. K. Meena, contended that after the amendment of the definition of “input service” with effect from 01.04.2011, several services such as club services, outdoor catering, short-term accommodation and similar employee-oriented categories stand excluded when used primarily for personal consumption. It was argued that the Commissioner (Appeals) correctly rejected refunds for such services.

The respondents further submitted that Rule 14 of the CENVAT Credit Rules, 2004, post-amendment by Notification No. 18/2012-CE (NT) dated 17.03.2012, distinguishes between “taken but not utilised” and “taken and utilised wrongly.” Therefore, for credits wrongly taken but not utilised, no proceedings are required before denying refund.

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The two-member Bench comprising Judicial Member, S. S. Garg and Technical Member, P. Anjani Kumar remanded the matter for fresh adjudication. The Tribunal noted that although the definition of “input service” excludes certain categories from 01.04.2011, such exclusions apply only when the service is used primarily for personal consumption of employees. The adjudicating authority had not examined whether the disputed services were used for personal purposes or were business-related, and therefore the refund could not be rejected without this determination.

On the issue of Rule 14 of the CENVAT Credit Rules, 2004, the Bench held that even after the 2012 amendment, credit that is taken wrongly but not utilised can still be recovered only by following the statutory mechanism under Rule 14(1)(i). The Tribunal emphasised that revenue authorities cannot determine nexus or deny credit eligibility at the refund stage without first issuing proceedings to deny credit in accordance with law.

The Bench also accepted the appellant’s position that there is no statutory timeline under Rule 6A of the Service Tax Rules, 1994 for receipt of foreign exchange in export of services, and once such consideration is received, the service qualifies as export. The Tribunal held that exclusion of export turnover on the ground of delayed realization was erroneous. Further held that there is no embargo on refund of Swachh Bharat Cess paid on input services where invoices were issued prior to 03 February 2016.

The CESTAT ruled that several findings of the Commissioner (Appeals) were inconsistent with judicial precedent, and accordingly allowed the appeal by way of remand with directions to re-examine the issues in accordance with law.

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