Unreported Decisions – ST – April 2022
By Vinay Kumar Jain & Sachin Mishra, Advocates
1. Whether in absence of any mechanism, ITC inadvertently utilised for payment of IGST on exports in contravention of Rule 96(10) of the CGST Rules, 2017, can be re-credited or restored, once the IGST along with interest is paid upon realisation of mistake?
Facts and Pleading: : M/s. I-Tech Plast India Pvt Ltd. (hereinafter referred to as “Petitioner”) is engaged in the business of manufacturing various types of toys. The Petitioner is importing raw-material under the advance license without payment of the import duty. The finished goods produced using the raw-material so imported have been exported by the Petitioner. The Petitioner opted for payment of IGST on exports, and thereafter claimed refund of such IGST on exports. However, inadvertently, the Petitioner utilized the ITC for payment of the IGST on exports (instead of paying the IGST separately) which, in turn, was automatically refunded. In view of Rule 96(10) of the CGST Rules, 2017 the Petitioner could not have utilized the ITC for payment of the IGST on exports. Upon realizing the aforesaid mistake, the Petitioner separately paid the requisite IGST (which was refunded in past) along with the interest thereon and informed concerned authorities. Subsequently, the Petitioner requested the authorities to re-credit/restore the ITC in the electronic credit ledger which was, inadvertently, utilized for payment of the IGST. The Petitioner, thereafter made several attempts with authorities for restoration of the above ITC. Despite these repeated attempts, when the ITC was not restored as requested, the Petitioner preferred the present petition.
The Petitioner argued that since the Petitioner has voluntarily paid the IGST on exports with interest, the corresponding ITC (which was initially utilized for payment of such IGST on exports) must be recredited/restored in the electronic credit ledger with interest. Despite the repeated oral as well as written representations by the Petitioner, the ITC is not being re-credited/ restored on the count that there is no such mechanism whereby the ITC can be recredited/restored upon voluntary payment of the IGST. As per the Petitioner, an honest taxpayer like the Petitioner must not suffer owing to lack of appropriate mechanism. Accordingly, the Petitioner argued that the action of the department in not recrediting/restoring the ITC in question is also not in consonance with Article 265 as well as Article 300-A of the Constitution of India, 1950
The department argued that Petition is not maintainable as the Petitioner is not at all entitled to claim the refund on the count that once an amount in question is paid in the Form-DRC-03 voluntarily, the same cannot be refunded.
Judgment: The Hon’ble High Court observed that in so far as the erroneous grant of refund and return of such refund amount together with interest by the Petitioner is concerned, the same is undisputed. Accordingly, the Hon’ble High Court held that the first part of the transaction is nullified inasmuch as the amount erroneously refunded has already been repaid by the Petitioner along with interest. The Hon’ble High Court further held that if the authorities have accepted that there was an error and resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored. The Hon’ble High Court observed that it cannot be that for the purpose of repayment, there was an error, and for the purpose of restoration of the ITC, there was no error. There is no question of any refund of the ITC at all. The Hon’ble High Court observed that the question is one of restoration of the ITC in the electronic credit ledger and not a refund thereof. Hence, any reference to sub-rule (10) of rule 96 of the CGST Rules is completely misconceived and not tenable. Accordingly, the Hon’ble High Court directed the respondent authorities to re-credit/restore the ITC to the tune of Rs.1,39,49,810/- in the electronic tax ledger of the Petitioner.
M/s. I-Tech Plast India Pvt LTD vs. State of Gujarat, decided on 07.04.2022, in R/Special Civil Application No. 3653 of 2021
M/s. I-Tech Plast India Pvt LTD
2. Whether onsite service rendered by subsidiaries or branch offices on behalf of the Holding Company or Head office located in India to overseas clients amounts to export of services? Whether value of onsite services provided by the subsidiary directly to their clients would be deducted from the value of “total turnover” while calculating refund under Rule 5 of the Credit Rules?
Facts and Pleading: M/s. Tech Mahindra Ltd., India (hereinafter referred to as ‘Assessee’) is engaged in business of providing software development services primarily to clients located outside India involving both Offshore and Onsite work. The Offshore work is undertaken by the Assessee in India whereas the Onsite work is undertaken by the Assessee with the help of their overseas branches/subsidiaries. The services provided by the Assessee to their overseas clients are classified in two manners, namely, Model I & Model II. Under Model I, foreign customer enters into a direct agreement with the Assessee. As per the contract, Assessee has to perform both offshore and onsite activities as a part of single transaction. The Assessee in turn sub-contracts the onsite work to their subsidiary. Model II covers only few cases where the overseas customers request the subsidiary of the Assessee to specifically enter into a direct contract with them. The subsidiaries of the Assessee enter into contract with the overseas customers on behalf of the Assessee but due to lack of capability to perform the entire activity on their own, they subcontract the entire contract to the Assessee as such with all the risks and rewards. No separate invoice is raised for Model-II by the Subsidiary. The subsidiaries work on cost plus basis and raise a consolidated invoice to the Assessee for performing the onsite services under both the models. Further, the Assessee is raising the invoice on the overseas customers for entire services rendered i.e. onsite as well as offshore. The Assessee has considered the above said taxable ITSS services (onsite as well as offshore) provided to foreign clients under both the Models as the export of taxable services provided from India in terms of Rule 6A of the Service Tax Rules, 1994. Accordingly, the Assessee filed a refund claim under Rule 5 of CENVAT Credit Rules, 2004 for claim of refund of cenvat credit availed on service tax paid on input services which were used in providing the output services exported without payment of service tax.
Department alleged that for Model-I, the activities carried out by the subsidiaries/branches are separate and are carried out by different legal entity. Therefore, as per department, since the onsite services provided by the subsidiaries are performed locally and procured, utilized as well as get consumed abroad, these services do not get covered in the ambit of the taxable services exported from India Territory as claimed by the Assessee. Department further alleged that in case of onsite services provided under Model-I, the condition (a) & (e) of the Rule 6A of the Rules are not satisfied, therefore, the test of exportability within the meaning of Rule 6A of the Rules fails. Further, the department also excluded the value of the onsite services provided under Model-II by the overseas subsidiaries from the value of the ‘total turnover’, while calculating the admissible refund claim amount as per Rule 5 of Credit Rules.
The Assessee submitted that when the onsite services are not provided by the Assessee then there is no question of including the amount received on such services in the value of the total turnover. Thus, the value of the onsite services has to be excluded from the Total Turnover while calculating refund under Rule 5 of the Credit Rules. The Assessee also submitted that the location of the Assessee in India is the place from where services are provided to customers. The Assessee also submitted that the onsite services rendered by the overseas subsidiaries and branches under Model-II would also qualify as export as it is the Assessee i.e. providing the services.
Judgment: The Hon’ble CESTAT agreed with the submissions of the Assessee and held that in respect of Model I, the services provided by the Assessee to their overseas clients through their subsidiaries and branch offices located outside taxable territory were in fact the services provided by Appellant to their clients for which they were billing their clients and receiving foreign exchange from their clients. The Hon’ble CESTAT observed that all the services provided by the Assessee to their overseas clients have been provided under umbrella of a single contract. As per Hon’ble CESTAT, the subsidiaries do not provide any services to clients independently. In fact, subsidiaries were providing services to Assessee and raising invoice to them on which the Assessee has discharged service tax under reverse charge mechanism. Therefore, as per Hon’ble CESTAT, these services are input services to the Assessee for providing the export services to their clients overseas. Further, with respect to Model II, Hon’ble CESTAT held that the said onsite services were not provided by the Assessee and therefore the same cannot be treated as part of the “total turnover” of the Assessee. Accordingly, the Hon’ble CESTAT dismissed the appeals filed by Revenue.
CCE & ST vs. Tech Mahindra Ltd., CESTAT, Mumbai decided on 4.3.2022 vide Final Order No. A/85255-85262/2022.
3. Whether proceedings are to be set aside on the count of inordinate delay in adjudication of the show cause notices on the count that the same have been transferred to call book is justified in view of several Circulars issued by CBIC?
Facts and Pleading: M/s. ATA Freight Line (I) Pvt Ltd (hereinafter referred to as ‘The Petitioner’) was engaged in the activity of buying and selling space in vessel. The Petitioner recovered the expenses from its clients to facilitate export/import of goods for providing cargo handling/ freight service incurred expenses. Five show cause notices were issued in 2011, 2012, 2013, 2014 & 2016 against the Petitioner on the aforesaid transaction for non-payment of service tax on freight difference. The Petitioner has filed reply to the aforesaid show cause notices at respective time itself. However, no further communication was received from the department afterwards. Petitioner addressed a letter dated 23.2.2021 to department seeking copy of closure report, if any. Department vide its letter dated 12.4.2021 informed Petitioner that show cause notices had been put in call book. Hence, the Petitioner challenged the said show cause notices by way of writ petition on the count of delay in adjudication.
The Petitioner stated that department ought to have adjudicated upon those 5 show cause notices within a reasonable period of time and could not have transferred to call book. The Petitioner also submitted that in any event, the Petitioner is not responsible for any delay in adjudication of those show cause notices for last several years. The Petitioner thus cannot be made to suffer on the ground that the department has transferred the show cause notices to call book contrary to law.
The department contended that the show cause notices could not be adjudicated upon due to the reason that the said show cause notices had been transferred to call book. As per department, a case is transferred to call book if such case cannot be adjudicated immediately due to certain specified reasons and adjudication is to be kept in abeyance. The transfer of show cause notice to call book is governed by circulars issued by CBIC i.e. Circular No.162/73/95-CX dated 14.12.1995, Circular No.719/35/2003-CX dated 28.5.2003 and Circular No.992/16/2014-CX dated 26.4.2016, Circular No.1053/2/2017-CX dated 10.3.2017. The department further submitted that the issue involved in the subject show cause notices in the writ petition are regarding non-payment of service tax on freight difference. The said show cause notices had been initially transferred to call book in the light of appeal filed by department in High Court against the order of CESTAT dated 30.9.2015 in case of M/s. Greenwich Meridian Logistics (I) Pvt. Ltd. The appeal filed by the department was dismissed by the High Court. The department filed appeal before the Supreme Court which was dismissed on the grounds of delay vide order dated 1.4.2019. Subsequently, the show cause notices however, were kept in call book in the light of similar issue where department had filed appeal in High Court against the order of CESTAT dated 27.7.2016 in respect of M/s. Phoenix International Freight Services Pvt. Ltd. The said departmental appeal is still pending before High Court.
Judgment: The Hon’ble High Court held that a show cause notice issued a decade back should not be allowed to be adjudicated upon by the department merely because there is no period of limitation prescribed in the statute to complete such proceedings. As per Hon’ble High Court, larger public interest requires that revenue should adjudicate the showcause notice expeditiously and within a reasonable period. Accordingly, it was held that keeping the show-cause notice in the dormant list or the call book, such a plea cannot be allowed or condoned by the writ court to justify inordinate delay at the hands of the revenue. The Hon’ble High Court further observed that it is duty of department to take the said ShowCause notice to its logical conclusion by adjudicating upon the said Show-Cause Notice within a reasonable period of time. In view of gross delay on the part of the department, the Petitioner cannot be made to suffer. In this regard, the Hon’ble High Court relied on Parle International Ltd. Vs. UOI, 2021 (375) E.L.T. 633 (Bom.) & The Bombay Dyeing and Manufacturing Company Limited Vs. Deputy Commissioner of CGST & CX, delivered on 14.2.2022 in Writ Petition No.2874 of 2021. Accordingly, the Hon’ble High Court held that the principles of law laid down in the above referred judgment would apply to the facts of this case. Accordingly, the show cause notices were quashed.
M/s. ATA Freight Line (I) Pvt Ltd vs UOI, The High Court of Bombay, dated 24.03.2022, in Writ Petition No. 3671 OF 2021