Exporter Can't Be Denied CENVAT Credit Solely For Lack Of Service Tax Registration: CESTAT Hyderabad

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax registration is not a pre-condition for taking CENVAT credit where a taxpayer was exclusively engaged in the export of services and not liable to pay service tax.

A bench of Judicial Member Angad Prasad and Technical Member A.K. Jyotishi held a plain reading of the statutory framework did not support the department's stand that such credit could be denied solely because the taxpayer had not obtained registration.

“Therefore, a plain reading of various relevant statutory provisions does not indicate that a person is required to have a service tax registration before he can take credit, however, he cannot utilise it without getting registered and following relevant provision, rules etc.", the tribunal held.

The tribunal was dealing with an appeal by IVY Comptech Pvt. Ltd., which challenged denial of a rebate arising from accumulated CENVAT credit on input services used for export of output services.

The department had objected to credit pertaining to 2006-07 and 2007-08 on the ground that it related to a period when the company was not registered under the Service Tax law. It had also denied portions of the claim, holding that services such as insurance, hotel expenses, rent-a-cab, air travel and other employee-related services lacked nexus with the exported services.

IVY Comptech argued that it was exclusively exporting services during the relevant period and was therefore not liable to pay service tax, making registration unnecessary. It also relied on judicial precedents, including Mportal India Wireless Solutions Pvt. Ltd. to contend that a rebate could not be denied solely for want of registration.

Accepting the contention, the tribunal held that neither the relevant CENVAT Credit Rules governing availment of credit nor the documentation requirements imposed any restriction barring such credit solely because the taxpayer had not obtained registration.

The bench also observed that there was nothing in law preventing such accumulated credit from being accounted for in private records before registration, though utilisation of the credit would remain subject to compliance with the statutory framework.

On the issue of nexus, the tribunal noted that before the 2011 amendment, the scope of eligible input services was wider, covering services used in relation to business activities, and that the eligibility of the disputed services would have to be examined in light of judicial precedents and the specific factual matrix.

Accordingly, the tribunal set aside the Commissioner (Appeals)' order and remanded the matter to the original authority for fresh determination of IVY Comptech's CENVAT credit eligibility and the consequent rebate claim.

For Appellant: Advocates Lakshman Kumar K & Shri Sriman Narayana, CAs for the Appellant.

For Respondent: Shri V.R. Pavan Kumar, Authorized Representative for the Respondent.