CESTAT Mumbai Says Revenue Can't Take Contrary Stands On Same Services, Allows Flipkart CENVAT Refund

The Mumbai Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 24 August allowed four appeals filed by Flipkart Internet Pvt. Ltd. against rejection of its refund claims under Rule 5 of the CENVAT Credit Rules, 2004.

A Bench comprising Judicial Member S.K. Mohanty and Technical Member Sanjiv Srivastava held that the Revenue cannot deny refund of accumulated CENVAT credit by treating services as not export of services when it had not initiated proceedings to recover service tax on those very services. It held:

“In absence of any notice for recovery of the service tax due from the appellant in respect of services not considered to be export of services in appropriate proceedings, we do not find much merit in the impugned order which is rejecting the refund claims filed in terms of Rule 5. Revenue cannot have two stands in respect of the same services.”

The dispute arose from four refund applications filed by Flipkart under Rule 5 of the CENVAT Credit Rules for the periods April 2008 to September 2008 and October 2008 to March 2009. Flipkart claimed that it had exported certain services to its overseas affiliate, eBay International AG, and had accumulated CENVAT credit which could not be utilised because of the exports.

The Department proposed to reject the refund claims primarily on the ground that the services did not qualify as exports. It contended that the services were provided to users located in India on behalf of the foreign entity and were received and used in India. The Department also raised an objection concerning CENVAT credit on certain input services.

The Commissioner (Appeals) upheld the rejection, holding that activities such as marketing, promotion and other services were carried out in India and related to buying and selling through the Indian website. It therefore concluded that the services did not satisfy the requirement of being delivered and used outside India under the Export of Services Rules, 2005.

The CESTAT disagreed with the Revenue's approach. It observed that if the Department's contention that the services were provided in India and did not qualify as exports was accepted, the services would be taxable services provided in India. The Revenue would therefore have had to initiate proceedings for recovery of service tax under Section 73 of the Finance Act, 1994, which provides for recovery of service tax that has not been levied or paid.

Further, the Bench held that the Revenue could not take two different positions in respect of the same services. Since it had not initiated proceedings to recover service tax on the ground that the services were provided in India, it could not reject the refund claims on the ground that the services did not qualify as exports.

It distinguished the Revenue's reliance on Croda India Company Pvt. Ltd., noting that the case involved an actual demand of service tax after the services were held not to qualify as exports. It also relied on the CESTAT's decision in JFE Steel India Pvt. Ltd., where it was held that when the Revenue had not initiated proceedings to demand service tax on services allegedly provided within India, it could not take a contrary position in refund proceedings and deny accumulated credit by treating the services as not qualifying as exports.

The Tribunal also referred to the Central Board of Excise and Customs (CBEC) Circular dated 24 February 2009 concerning Category III services. The Circular clarified that, for such services including Business Auxiliary Services, the relevant consideration is the location of the service recipient rather than the place where the service is performed. Thus, services can qualify as exports even when the activities are performed in India, provided the benefit of the services accrues outside India.

Accordingly, the CESTAT held that the services provided by Flipkart qualified as export of services, set aside the impugned order and allowed all four appeals, and the miscellaneous applications seeking a change in the appellant's name.

For Flipkart: Shamik Gupta, Advocate

For Revenue: S.B.P. Sinha, Authorised Representative