Refund of Service Tax under Notification No. 41/2007-ST, Dated: 06.10.2007

PJ/Case Study/2010-11/13

Case Study

Prepared By:

CA Pradeep Jain

Parag Ghate, B.Com and

Sukhvinder Kaur, LLB [FYIC]

Introduction:

With the view to encourage exports of the country, the Government has extended many benefits like exemption from payment of duty or payment at concessional rate of duties, to the exporter. Many schemes like DEPB scheme, Advance Authorisation schemes etc have been floated. In that endeavour, the Government had granted exemption from payment of service tax to the exporters who are using certain specified services like CHA services, Port services, for exporting their goods. Accordingly, Notification No. 41/2007-ST dated 06.10.2007 was issued and amended from time to time. But the intention of the Government is not being fulfilled as the Department is not readily granting the refund to the exporters on one or the other ground. In the case under study, the exporter has been denied the refund claim on procedural lapses and other grounds even when he had fulfilled the substantive conditions.

M/s Ornet Intermediates Ltd v/s Deputy Commissioner, Ahmedabad-I

[Order-in-Appeal No. 144/2010(Ahd-I)CE/MM/Commr(A)/Ahd dated 08.06.2010]

Brief Facts:

- Appellants are engaged in the manufacture of S.O Dyes Falling under Chapter 32 of CETA, 1985. They are also exporting there finished goods.

- They filed refund claim of service tax paid on the services utilised for export of goods in terms of Notification No. 41/2007-ST dated 6.10.2007 for the period from October, 2008 to March 2009.

- Department issued show cause notice to the appellant proposing to reject the refund claim on the grounds that

(i) The claim was not filed in specified proforma but the claim has been filed in Form R.

(ii) All the services provided by the different service providers were classified under the category of CHA service.

(iii) The refund claim of Terminal handling Charges, Measurement Charges, Pre Carriage Charges, Pellatisation Charges Documentation Charges, Repo Charges, B/L Charges was not admissible as the conditions mentioned at column 4 of Sr. No. (i) (a) of Notification 41/2007-ST dated 6.10.07 specified for CHA services were not fulfilled.

(iv) Terminal Handling service was not specified service falling under the schedule to the Notification No. 41/2007-ST.

(v) Debit notes are not the proper documents as per condition (i) of column 4 of Sr. No. 13 of Notification 17/2008-ST.

(vi) No documentary evidence was produced to show that service tax was actually paid by the respective service providers.

- Appellant filed reply to the show cause notice. Appellant had also produced additional documents i.e. the Account statement of their CHA and a statement of their CHS that service tax was deposited in the Govt. Exchequer.

- On the basis of the additional documents, the Deputy Commissioner passed impugned order partly allowing the refund claim relating to CHA services but rejected the remaining claim.

- Aggrieved by the impugned order partly rejecting the refund claim, the appellant have filed further appeal before the Commissioner (Appeal).

Appellant’s Contention:

Before the Commissioner (Appeal), the appellant raised the following contentions:

¨ Appellant submitted that the appellant have by mistake mentioned all the services received and utilised by them with regard to export of their goods as CHA services. That they have claimed refund of CHA services and of Port Services. Only in the worksheet the appellants have mentioned all the services as CHA service. This was a clerical mistake and they had no intention of violating the provisions of Notification No. 41/2007-ST. That from service tax invoices itself it was clear that these invoices were related to port services.

¨ Appellant submitted that in the impugned order it was has held that in the invoices issued by the service providers other than M/s Chinubhai Kalidas (Appellant’s CHA), the details mentioned at 4^th column in sr. no. (i) (a) of the said Notification relating to CHA services were not fulfilled. In this regard it was submitted that the services provided by the service providers other than M/s Chinnubhai Kalidas did not fall under the CHA services but fell under the category of port services. That the Notification No. 41/2007-ST has prescribed the conditions mentioned at the 4^th column in sr. no. (i) (a) for CHA services and the said services did not fall under the CHA services but were port services. And the Notification did not prescribe any conditions to be fulfilled by the provider of port services. Therefore, even if the details mentioned in the 4^th column in sr. no. (i) (a) were not mentioned on their invoices, the refund cannot be denied to the appellant.

¨ With regard to rejection of claim on terminal handling charges, the appellant submitted that these charged were included in the category of port services even prior to 07.07.09 when the Notification No. 17/2009-ST had superseded Notification No. 41/2007-ST and had provided that the said service was port services. That the Notification No. 17/2009-ST dated 07.07.09 merely clarified that terminal handling services fell under the category of port services.

¨ It was further submitted that the judgment given in In Re G.P.L. Polyfills [2009(14) S.T.R. 557 (Commr. Appl.)] was not considered. In this decision it has been held that in the definition of port services the word ‘any services’ includes B/L charges, DOC charges, releasing charges and THC fall under Port services and department cannot deny the services of registered service provider duly authorized by Port to render such services and service tax in respect of same is shown as actually paid to the Government.

¨ With regard to rejection of claim on the ground that debit notes were not proper documents under service tax, it was submitted that the prime condition governing the refund of service tax is that there should be export, use of specified services for export and there should be payment of service tax invoice by the exporter. Since the invoice issued by the service provider is having the main details which confirm the tax-paid character of the invoice, the refund should be allowed.

¨ Appellant relied upon the judgment given in the case of Bajaj Tempo Ltd. versus Commissioner of C. Ex., and Customs, Pune [1999 (106) ELT 145 (Tribunal)], wherein the hon’ble Tribunal had allowed credit in case where there were certain technical discrepancies/insufficient information in the invoice. It has been held by the hon’ble Tribunal that the credit is not deniable for the sake of technical or procedural objections when the substantive conditions, i.e. duty paid character of inputs, their use in the manufacture of final products and clearance of final product on payment of duty is clearly established.

¨ Appellant also relied upon the judgment given in the case of Commissioner of C. Ex., Mumbai v/s Manish Engineering Corporation [2003 (162) E.L.T. 670 (Tri. - Mumbai). However, in the impugned order it was been held that these citations were not squarely applicable in appellant’s case as they pertain to availment of Modvat credit on the duty paying documents and the instant case pertained to refund claim of service tax under the provisions of Notification No. 41/2007-ST. In this regard, the appellant submit that the learned Adjudicating Authority has tried to distinguish the case law but is not following the ratio of these decisions. The ratio of these decisions is very much clear when the basic fundamental conditions of the scheme is fulfilled then technical and minor lapses like writing of invoice in place of debit note should be ignored. Moreover, the invoice contains all the details as required under Rule 4A of service tax rules and service tax on the same was paid.

¨ In the end appellant submitted that the ultimate intention of Government was to provide the maximum benefit to the exporters. This notification is issued as one more step in towards it. But the benefit is not being extended to the exporters and the department is issuing the various show cause notices to them and alleging to deny the refund on account of meager technical defects or by searching the lacunas in the law.

Issue Involved:

The issued involved in this appeal are as under:

- Whether substantial benefit of refund claim can be denied due to procedural lapse of not submitting the refund claim in prescribed format?

- Whether terminal handling service falls under the service of port services and therefore, refund of the same will be admissible under Notification no. 41/2007-ST?

- Whether refund claim will be admissible on the basis of debit notes when they are not the prescribed documents but contain all the details as prescribed to be contained in a service tax invoice/bill and the service tax charged therein has been paid to the Government?

Order of the Commissioner (Appeal):

The Commissioner (Appeal) held as under:

Ø Classification of services was not proper: - The Commissioner (Appeal) held that to deny a statutory right of an assessee for mere procedural lap is uncalled for as has been held by the Supreme Court in the case reported in 1991 (55) ELT 437 (SC). In this case it was held that “there are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.” It was held that Deputy Commissioner was in error in holding that the said judgment was not applicable to service tax refunds, as Courts lay down judicial ratios and here it has been held by the Supreme Court that certain minor procedural lapses can be condoned if substantive conditions are compiled with. This judicial ratio will be applicable to service tax matters as it would be applicable to customs and central excise matters.

It was held that classifying all the services under one category was a procedural lapse and leniency was required to be given. The Department could always guide the assessee in such matter and to reject a rebate claim on such a reason does not appear in consonance with the spirit of the scheme enabled by the Notification No. 41/2007-ST.

Ø CHA Services: - With regard to fulfillment of conditions prescribed for CHA services by the CHAs of appellant other than M/s Chinubhai Kalidas, the Commissioner (A) held that mentioning of number and date of shipping bills on export invoices raised by CHA is a mandatory requirement of the notification and cannot be done away with. But the matter was remanded to the Deputy Commissioner on the appellant’s contention that the number and date of shipping bills was mentioned in the invoice and to dispose of the refund claim accordingly.

Ø Terminal Handling charges: - The Commissioner (Appeal) held that the refund on terminal handling charges was not admissible before 07.07.2009 as the Notification No. 17/2009-ST dated 07.07.2009 granted exemption by way on refund on the said services from 07.07.2009 onwards. It was held that if the refund was to be available before 07.07.2009 the same would have been done by enlarging the definition of port services. Thus, as the refund claim on THC charges pertains to period before 07.07.2009, the Deputy Commissioner rightly denied the refund claim for THC charges.

Ø The Commissioner (A) further held that when statutory conditions are clear or if even one fact distinguishes the cited case laws from the case in hand, the case-laws are not binding. In this regard, the judgment of the Supreme Court in the case of Commissioner of Central Excise, Bangalore v/s Shri Kumar Agencies [2009 (13) STR 3(SC)] was relied wherein it was held that the court should not place reliance on decisions without discussing as to how the factual situation fits in the situation of the decision on which reliance is placed. Observation of the courts are not to be read as either to be read as Euclid theorems nor as provisions of the statute and that too taken out of context. These observations must read in the context in which in they appear to have been stated. Judgments of courts are not be construed as statutes. To interpret words, phrases and provisions of the statute, it may become necessary for judges to embark in to lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. Circumstantial flexibility, one additional or different fact, may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.

Ø Debit Notes are not proper documents: - The Commissioner (Appeal) held that issuing of debit notes instead of invoices/bill would be a very minor infringement and to withhold the refund on the ground that the debit note are not proper documents as per condition (I) of column 4 of serial no. 13 of Notification No. 17/2008-ST would be going against the spirit of the Notification.

The Commissioner (Appeal) relied upon the Board Circular no. 122/03/2010ST dated 30.04.2010 wherein it has been clarified at paragraph 5 (a) that when the substantive law, i.e. section 67 of the Finance Act 1994 treats such as adjustments as Deemed payment, there is no reason for denying such extended meaning to the word ‘payment’ for availment of credit under Rule 4(7) of CCR 2004. On the same analogy, the Commissioner (Appeal) permitted refund of service tax paid on debit notes raised by Messer Meridian Shipping Agency Pvt Limited.

Ø Proof of payment of Service Tax not submitted: - The Commissioner (Appeal) held that the condition that documentary evidence should be produced to the effect that service tax shown in all the invoices has actually been paid by the service providers, appears to be an extraneous condition imposed by the Deputy Commissioner. The only condition in the Notification no. 41/2007-ST is given in 2(a) is that “the person liable to pay service tax under sub-section (1) or sub-section (2) of the section 68 of the said Finance Act shall pay service tax as applicable on the specified services provided to the exporter and used for export of the said goods, and such person shall not be eligible to claim exemption for the specified service.”. The Board has clarified by Circular no. 106/9/2008 ST dated 11.12.2008 that an invoice/Challan/bills issued by a supplier of taxable service is the evidence that service on which refund is being sought are taxable service. Merely on a hunch, to deny the appellant his statutory right does not appear proper.

Decision of the Commissioner (Appeal):

Impugned order is modified to the above extent and appeal disposed off accordingly.

Conclusion:

The learned Commissioner (Appeal) rightly allowed the refund claim of the assessee. It was rightly held that the refund claim of service tax relating to export of goods under Notification No. 41/2007-ST is a substantial benefit and could not be denied on the ground of certain procedural lapses. It was rightly held that if the substantial conditions were fulfilled that merely because of procedural defects denying of refund claim was not proper.

Further, the Commissioner (Appeal) rightly allowed the refund claim filed on the basis of Debit Notes. The debit notes are not issued by the assessee but are issued by the service provider and therefore, for the fault of the service provider the substantial benefit could not be denied to the assessee.

However, the Commissioner (Appeal) has denied the refund claim on the basis of Terminal handling charges by holding that the refund claim was allowed from 07.07.2009 onwards as prescribed in Notification No. 17/2009-ST.

Thus, assessee-exporter has at every step won one point but have lost on the other. The intention of the Government to grant exemption by way of refund of service tax paid on service utilised for export of goods, does not seem to be fulfilled completely. The exporters are being challenged on every step of the way.

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24 July 2010

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PJ/CASE STUDY/2010-11/13
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