[Order per : M. Veeraiyan, Member (T)]. - These two appeals are by the Department and relate to the same respondent, M/s. Convergys India (P) Ltd. and involve common issues and, therefore, are being dealt with by a common order.
2. Heard both sides.
3. The relevant facts, in brief, are as follows :
(a) The respondent through their various centres located at Mumbai, Pune, Bangalore and Gurgaon are engaged in rendering customer care services on behalf of foreign clients through the medium of telephone, e-mail and web based interaction. The services fall under the taxable category of business auxiliary service.
(b) They use several input services like Advertisement Agency Services, Chartered Accountant Services, Management Consultancy Services, Leased Circuit Services, Courier Services, Erection Commissioning and Installation services, Manpower, Recruitment or supply agency services, rent-a-cab operator services, Management, maintenance or repair services, Telephone services, Security Agency Services, Outdoor catering services, Mandap keeper services, Banking and other financial services, Cargo handling services, Real estate agent services, computer network, services of practicing chartered account, guest house services, air travel services.
(c) They have also received and used management consultancy services from a Foreign Company. Since the said foreign service provider did not have any office in India the respondents have, as a recipient of services, registered themselves and paid service tax on this management consultancy services.
(d) By Notification No 9/2005-S.T., dated 15-3-2005, the Central Government notified the Export of Service Rules 2005. Rule 4 permitted export of services with out payment of service tax. Rule 5 enabled the Central Government to provide for grant of the rebate of credit of duty paid on inputs and also service tax paid on input services used for rendering of export of services. By Notification No. 12/2005-S.T., dated 19-4-05 issued under Rule 5 of the Export Rules, the Central Government provided for claiming the rebate of service tax paid input services used for rendering of services qualifying as export services under the rules subject to the conditions and limitations and in accordance with the procedure prescribed therein. Under the said Notification, the exporter of services was required to file a declaration, prior to the date of export of service, inter alia, containing details like the description of the inputs and the input services actually required to be used in providing taxable service to be exported.
(e) The appellant filed the declaration vide the letter dated 9-5-05 and subsequently filed rebate claim dated 5-10-05 for Rs. 16,43,840/- for the period from 19-4-05 to 30-4-05 and another rebate claim dated 14-12-5 for Rs. 13,75,876/- for the period 1-5-05 to 31-5-05.
(f) Original authority rejected the refund claims. The said orders of the original authority were set aside by the Commissioner (Appeals) and the appeals were allowed with consequential relief and the respondent became entitled to rebate claims. Hence, the Department is in appeals.
4. The department assails the orders of the Commissioner (Appeals) on the following grounds :
(a) Filing of declaration prior to export of services as envisaged in para 3(1) of the Notification No. 12/2005-S.T., dated 19-4-05 is mandatory and there is no provision for condoning the delay in filing the declaration. As the assessee has filed the declaration only on 9-5-2005, no rebate of service tax for period prior to 9-5-2005 is admissible.
(b) The services of Mandap Keeper, Outdoor Catering, Real Estate Agent Services, Erection, Commissioning and installation services, rest house services, air/rail services, flower arrangements/rental charges for hiring and maintenance of indoor foliage plants, up keeping of office janitorial services, hydrant sprinkler system and photocopier services are not actually used in providing the services, but are related to the other services required for maintenance of capital assets/goods not actually used in the output services and cannot be considered to be input services actually required to be used in the output services of the nature of the service being provided by the party.
(c) The assessee did not declare which services were input services for the output services being provided by them.
5. Learned Advocate for the assessee made the following submissions
(a) They are into only export of services. All the input services for which rebate is claimed have been used for rendering of export services.
(b) The notification 12/2005 prescribing rebate has been issued subject to the conditions, limitations and procedures specified thereunder. The conditions and limitations have been separately prescribed under clause (2) of the notification. The procedure including the one relating to filing of declaration has been separately prescribed under the heading procedure.
(c) The late filing of the declaration as per notification dated 19-4-2005 is a procedural lapse. The non-observance of a procedural condition of a technical nature cannot be used to deny the substantive concession. Further, in respect of export, a liberal view requires to be taken. The non-fulfilment of the procedure cannot lead to denial of the benefit under the beneficial legislation providing for export benefits. Further, when the notification is issued on 19-4-2005 it is not possible to comply with the conditions under the same instantaneously.
(d) In similar circumstances, the Tribunal in the case of CST, Delhi v. Keane Worldzen India Pvt. Ltd. [] interpreting the very same notification held that the rebate on export of service shall be eligible in spite of delay in filing the declaration.
(e) He relies on the decision of the Kamakhya Steels (P) Ltd. v. C.C.E, Meerut reported in (Tri.-LB) in support of his claim that mere failure to file declaration which is a procedural lapse should not come in the way of granting substantial justice.
(f) He also relies on the decision of the Tribunal in the case of C.C.E., Hyderabad-IV v. Deloitte Tax Services India Pvt. Ltd. reported in (Tri.-Bang.) in support of his contention that services such as Equipment hiring, professional consultation service, recruitment service, security service, telephone service, transport service, training service, facility operation service, courier service, cafeteria service and advertisement service are to be considered as in put services in relation to out put services like the one rendered by them.
(g) In the absence of any methodology provided in the notification providing for rebate, they have claimed credit on proportionate basis for the period of 12 days for the month of April, 2005.
(h) Input services have been used in connection with the export of services and not in procurement of input services (Management Consultancy). The Tribunal in the case of CCE v. Dynaspede Integrated System Ltd. [].
5.1 We have carefully considered the submissions from both sides. The Department wants the rebate to be denied on merits on grounds like some services can not be considered as input services, some services are used only in maintenance and repair of capital assets, some of the services have no direct nexus with the out put services etc. The Department also wants the rebate to be denied for part of period on the ground that the required declaration has not been filed before export of the services.
5.2 As the issue involved mainly revolves around the interpretation of the Notification 12/2005-S.T., the relevant portions of notification is reproduced below :
“2. Conditions and limitations :
(a) that the taxable service has been exported in terms of rule 3 of the said rules and payment for export of such taxable service has been received in India in convertible foreign exchange;
(b) that the duty, rebate of which has been claimed, has been paid on the inputs;
(c) that the service tax and cess, rebate of which has been claimed have been paid on the input services;
(d) the total amount of rebate of duty, service tax and cess admissible is not less than five hundred rupees;
(e) no CENVAT credit has been availed of on inputs and input services on which rebate has been claimed; and
(f) that in case, -
(i) the duty or, as the case may be, service tax and cess, rebate of which has been claimed, have not been paid; or
(ii) the taxable service, rebate for which has been claimed, has not been exported; or
(iii) CENVAT credit has been availed on inputs and input services on which rebate has been claimed, the rebate paid, if any, shall be recoverable with interest as per the provisions of Section 73 and Section 75 of the Finance Act, 1994 (32 of 1994) as if no service tax and cess have been paid on such taxable service.
3. Procedure :-
3.1 Filing of declaration. - The provider of taxable service to be exported shall, prior to date of export of taxable service, file a declaration with the jurisdictional Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, describing the taxable service intended to be exported with, -
(a) description, quantity, value, rate of duty and the amount of duty payable on inputs actually required to be used in providing taxable service to be exported;
(b) description, value and the amount of service tax and cess payable on input services actually required to be used in providing taxable service to be exported.
3.2 Verification of declaration.- The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall verify the correctness of the declaration filed prior to such export of taxable service. If necessary, by calling for any relevant information or samples of inputs and if after such verification, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise is satisfied that there is no likelihood of evasion of duty, or as the case may be, service tax and cess, he may accept the declaration.”
6.1 Cenvat Credit Rules, 2004 provide for credit of duty paid on inputs and credit of service tax paid on input services to a manufacturer of excisable goods. The said Rules also provide for credit of duty paid on inputs and credit of service tax input services to provider of output services. There is a liberal approach in granting of credit in respect of services mentioned in Rule 6(5) of Cenvat Credit Rules. Credit needs to be disallowed in respect of services mentioned therein only if such services are utilised exclusively in the manufacture of exempted goods or providing exempted services. The said sub-rule is reproduced below :
“(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clauses (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.”
6.2 Export of Services Rules, 2005 were notified by the Central Government vide Notification No. 9/2005, dated 3-3-2005. Rule 4 provides that any taxable services can be exported without payment of service tax. Rule 5 of the said rules enables the Central Govt. to issue notification to grant rebate of service tax paid on such taxable services or service tax or duty paid on input services or inputs, as the case may be, used in providing such taxable service. It is worthwhile to remember that Rule 5 is only enabling provisions unlike Rule 4. Accordingly, Notification No. 12/05, dated 19-4-05 has been issued by the Central Govt. providing for rebate of the whole of the duty on excisable inputs on the whole of ST and cess paid on taxable input services used in providing taxable service exported subject to the conditions and limitations prescribed therein and subject to following the procedure prescribed therein. Under the said Notification, the exporter of services was required to file a declaration, prior to the date of export of service, inter alia, containing details like the description of the inputs and the input services actually required to be used in providing taxable service to be exported.
6.3 The term ‘inputs’ and ‘input services’ used in Export Services Rules have been given the same meaning as in Cenvat Credit Rules as per Rule 2(b) and Rule 2(c) of the Export Services Rules.
6.4 The eligibility to the credit of the duty paid on inputs and the credit of tax paid on input services are not contingent on whether the services are exported or not. It is incidental that the respondent is exporting the entire services as of now. They could as well be rendering, or may render in future, the same services to domestic customers. They could be partly providing the said services to domestic customers and could be partly exporting services. In all the situation, the criteria for the eligibility of the credit will be the same.
6.5 In the present case, the respondent is admittedly providing only taxable services. The show cause notice does not question the validity of the Cenvat credit taken on the various services used by the respondent. As a result, if they were rendering the same services to domestic customers, partly or fully, they would be entitled to use the credit to pay the service tax.
6.6 Rule 5 of the Cenvat Rules provide for refund of credit of duty on inputs and credit of service tax on input services used in providing out put services. The said rule is reproduced below :
“RULE 5. Refund of CENVAT credit. - Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,
(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or
(ii) service tax on output service,
and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification :
Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.
Provided further that no credit of the additional duty leviable under sub-section (5) of Section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.
Explanation : For the purposes of this rule, the words ‘output service which is exported’ means the output service exported in accordance with the Export of Services Rules, 2005.”
6.7 From the above, it is clear that there can not be two different yardsticks, one for permitting credit and the other for eligibility for granting rebate. Whatever credit has been permitted to be taken, the same are permitted to be utilized and when the same is not possible there is provision for grant of refund or as rebate. With out questioning the credit taken, the eligibility to rebate can not be questioned.
7.1 In common parlance, if the cost of such goods and services becomes part of the cost of the final product or the cost of the output services, as the case may be, then they are understood as input and input services in relation to said final products or the output services.
7.2 The term “input service” as per Rule 2(l) of the Cenvat Credit Rules 2004, in the context of service provider, includes services used in relation to setting up, modernization, renovation or repairs of....premises of provider of out put service or an office relating to such.....premises, advertisement or sales promotion, market research,........procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer net working, credit rating, share registry, and security,...........
7.3 The definition of term “Input Services” is an inclusive definition. When services used in connection with setting up the premises and also services used in connection with repairs of the premises are considered as “input Services”, it would be appropriate to consider services used for in-between-activities namely day to day maintenance as also part of the input services.
7.4 The show cause notice alleged that the respondent had used imported input services and in connection with procurement of such services, they had also used certain other input services by using telephone, telex, fax, e-mail etc. and such services used for procuring such input services cannot be treated as input services. This appears to be erroneous. Using telephone, telex, fax, e-mail etc. can not be treated as out put services provided by the respondent. Therefore, such input services used in connection with procurement of other input services has to be treated necessarily as input services.
7.5 The imported “management consultancy services” have been used only in relation to providing services which are exported. Obviously, the cost of such, imported services forms part of the value of export services.Further, the cost of services used in procuring such services from foreign country also necessarily go into the cost of imported input services. The position does not change, even when the service tax on the imported services is paid by the respondent in view of the special legal provision.
7.6 Submissions have been made on behalf of the respondent that the services of real estate agent used in connection with procuring the premises for providing the services are very much input services; that the services relating to advertisement for recruitment of personnel is to be treated as input services as recruitment of personnel is part of the activities in setting up the office; that the services of Chartered Accountant engaged in running the company providing the service are to be treated as input services; that the services of outdoor caterer to provide meals and snacks and also services of travel agent for providing pick up and drop, as part of the requirement of the Policy of the Haryana Govt., as the customer care centre are run at odd hours to cater the need of the overseas customers in different time zones are to be treated as input services; that security Agency services cannot be treated as anything other than input services.
7.7 On the other hand, it was contended by the Department that certain services used for maintenance of capital goods as assets cannot be considered as input services. Some services which are having peripheral connection with output services and not having direct nexus cannot be treated as input services. It was contended that to be qualified as input services they should be used in providing taxable services.
7.8 The Tribunal in the case of C.C.E., Hyderabad IV v. Deloitte Tax Services India Pvt. Ltd. reported in (Tri.-Bang.) has held that services such as Equipment hiring, professional consultation service, recruitment service, security service, telephone service, transport service, training service, facility operation service, courier service, cafeteria service and advertisement service are to be considered as in put services in relation to rendering of Business Auxiliary Services.
7.9 In the present case, it may be appropriate to note that there is no dispute raised by the department about the eligibility to the credit to the respondent which they have taken. Further, the terms ‘inputs’ and ‘input services’ used in Export Services Rules have been given the same meaning as in Cenvat Credit Rules as per Rules 2(b) and Rule 2(c) of the Export Services Rules. In substantially the same situation, Rule 5 of the Cenvat Rules provide for refund of credit of duty on inputs and credit of service tax on input services used in providing out put services. We do not, therefore, find any reason to deny the rebate.
8.1 The notification itself has extended the concessions subject such conditions, limitations and also prescribed the procedure. The filing of declaration has been listed under the procedure. Therefore, we hold that late filing of the declaration as per notification dated 19-4-2005 is only a procedural lapse. The declaration relates to both inputs as well as input services. The verification in respect of input services are mainly based on documents unlike in the case of inputs.
8.2 The nature and standard of verification envisaged in the notification in respect of inputs and input services are different. For example, in respect of inputs even drawing of samples can be considered as could be seen from the following stipulation :
If necessary, by calling for any relevant information or samples of inputs and if after such verification, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise is satisfied that there is no likelihood of evasion of duty, or as the case may be, service tax and cess, he may accept the declaration.
8.3 The document based verification can be at a latter point of time. In this case, we are concerned only about rebate of credit on input services. The non-observance of a procedural condition in this case is of a technical nature and cannot be used to deny the substantive concession. Further, in respect of export, a liberal view requires to be taken. The non-fulfilment of the procedure cannot lead to denial of the benefit under the beneficial legislation providing for export benefits.
9. The appeals by the Department, are rejected.
(Pronounced on 18-5-2009)