Appellate tribunal quashes Rs 12-cr penalty on Cognizant for tax violations

The tax dispute came to light when an audit was conducted by the officers of the erstwhile Large Taxpayer Unit, Commissionerate, Chennai.

In a relief to the India arm of Cognizant Technologies, a Chennai tax appellate tribunal has quashed a Rs 12-crore penalty against the company, imposed for alleged violation of Cenvat Credit Rules, 2004.

“We find that the main charge against the appellant (Cognizant) fails on merits,” said the Customs, Excise and Service Tax Appellate Tribunal, Chennai, ruling of January 12.

The tax dispute came to light when an audit was conducted by the officers of the erstwhile Large Taxpayer Unit, Commissionerate, Chennai. Subsequently, it was alleged that Cognizant had declared 'exempted services' in violation of the Cenvat Credit Rules.

The authority claimed that Cognizant India had availed Cenvat credit on common input services, used for both taxable and exempted services, without maintaining separate accounts.

However, it was ruled that the onsite services were not rendered by Cognizant India but by the US branch office. The conclusion was based on US income tax returns and financial statements.

The tribunal gave reference to a judgment by the Chennai High Court in Linde Engineering case, where Linde India was providing service to its parent company Linde Germany.

“The facts in this case show that CTS (Cognizant Technology Solutions) USA, and not CTS India, which was supplying services and that too to a foreign customer and hence the facts are distinguished and do not support revenue's stand,” the order read.

The tribunal ruling further said, based on facts and evidences, that the penalty cannot sustain and requires to be set aside.