Whether the refund could be denied on the ground that input services are availed prior to export?

PJ/Case Law /2016-17/3277

Case-IMCOLA EXPORT LTD. Versus COMMISSIONER OF SERVICE TAX, CHENNAI

Citation-2016 (42) S.T.R. 349 (Tri. - Chennai)

Brief Facts-The brief facts of the case are that Export is the sole business of the appellant and there were no domestic clearances during the material period. Hence, export being day-to-day activity of the appellant there cannot be one-to-one relationship to be established between the services availed and export made. Therefore, denial of refund of service tax paid on the impugned exempted services is unreasonable.

Appellants Contention- Learned counsel says that only on the ground that the exempted services covered by Notification No. 41/2007-S.T., dated 6-10-2007 not being availed prior to export of the goods, appellant is not entitled to refund of service tax paid thereon. Export is the sole business of the appellant and there were no domestic clearances during the material period. Hence, export being day-to-day activity of the appellant there cannot be one-to-one relationship to be established between the services availed and export made. Therefore, denial of refund of service tax paid on the impugned exempted services is unreasonable.

Respondents Contention- On the other hand, the learned Departmental representative says that when there is no provision in law to allow the refund of service tax paid prior to the export, that denies the refundclaim. The service should have been availed during export to claim Cenvat credit.

Reasoning of Judgment- The notification in question exempts the services. The very core of the notification being exemption, denying the refund technicality shall be contrary to the spirit thereof resulting in discouragement to exports. Foreign exchange being necessity for the country, discouragement to the export is undesirable. But that does not mean that the notification condition is to be given go bye.
Appellant submitted that export is only activity which is not controverted by other side. If the refund is not given in one quarter that shall be given in the next quarter, which is not in doubt. Therefore, embargo by the procedure would be a barrier to get the export incentive through refund of the service tax paid. There being no one-to-one relationship prescribed by the notification between the input service and export, denial of refund shall be a hurdle to the export. Furthermore, grant of refund is object of the notification but exemption is nomenclature. Therefore, denial of refund is contrary to law for the reason that taxes are not to be exported but only goods are to be exported. If refund is denied, such denial shall make the goods costlier and will be a burden to the export which may make that incompetitive in the global trade. Keeping all these rationale in view, appeal is allowed.

Decision-Appeal allowed

Comment-Denial of refund on the ground that input services which are exempted under Notification No. 41/2007-S.T. are not availed prior to export is not feasible as the very core of the notification is being giving exemption, so denying the refund technicality shall be contrary to the spirit of the notification resulting in discouragement to exports.And as per Rule 5 of CCR’2004 if refund is not given in one quarter that it shall be given in the next quarter.
Further, in absence of any condition in Notification providing correlation between input services availed and goods exported, denial of refund not justified. Therefore, denial of refund is contrary to law for the reason that taxes are not to be exported but only goods are to be exported. If refund is denied, such denial shall make the goods costlier and will be a burden to the export which may make that incompetitive in the global trade. Keeping all these rationale in view, appeal is allowed.

Prepared by-Neelam Jain

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PJ/Case Law /2016-17/3277

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