Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/036

30 March 2010

PJ/CASE STUDY/2009-10/36

Case Study

Prepared by:

CA Pradeep Jain and

Sukhvinder Kaur, LLB

Introduction: -

Government had introduced the scheme to give exemption from payment of service tax to the exporter who availed certain specified services for export of its finished goods. The exemption was granted by way of refund vide Notification No. 40/2007-ST, dated 17.09.2007. This Notification was replaced by Notification No. 41/2007-ST dated 06.10.2007. For claiming the exemption from service tax, the Notification had also prescribed certain conditions to be fulfilled by the exporter for claiming refund. Certain conditions were also prescribed in the Notification. We have written a series of articles titled “Johnny and service tax refund” on this issue to highlight the problems faced by exporters. The same is still available on our website. The Department was rejecting the refund claims of the assessees if any condition was not fulfilled. It was the view of the Department that all the conditions are mandatory in nature and non-compliance of any condition would lead to rejection of the refund claim. No division was made between the statutory conditions which were to be fulfilled compulsorily and the procedural conditions which if not fulfilled would not be the reason for rejection of the refund claim. One such condition was that the exporter has not availed the benefit of Duty Drawback scheme while exporting their goods. In the case under study, the refund claim was sought to be rejected on the ground of availing the duty drawback scheme.

M/s Raj Polymers & Chemicals v/s Assistant Commissioner, Jodhpur

[Order-in-Appeal No. 421(KKG)CE/JPR-II/2009, Dated: 28/10/2009]

Brief Facts of the Case: -

- Appellant are a 100% Export Oriented Unit engaged in the manufacture and export of Guar Gum.

- The appellant had filed refund claim in respect of service tax paid on the services received and used for export of goods for the period 19.09.2007 to 30.09.2007 under the Notification No. 41/2007-ST, dated 06.10.2007 (earlier Notification no. 40/2007-ST dated 17.09.2007). Under the said Notifications, certain specified services which have been used for export of goods are granted exemption by way of refund from payment of service tax.

- Show cause notice was issued to the appellant proposing to reject the refund claim on the alleged ground that they have availed the benefit of duty drawback scheme. Reply to the show cause notice was filed by the appellants.

- The Adjudicating Authority rejected appellant’s claim on the ground that the appellant had not submitted the relevant documents therefore it appeared that goods were exported under Drawback scheme.

- Aggrieved by the order-in-original passed by the Adjudicating Authority, appellant has filed appeal before the Commissioner (A).

Appellant’s Contention: -

¨ Appellants have challenged the order-in-original on the ground that no allegation was raised in the show cause notice that they have not submitted the relevant documents. The only allegation raised was that they have claimed drawback.

¨ Appellant contended that since the impugned order is beyond the show cause notice therefore it is not legally sustainable and is liable to be quashed.

¨ Appellants relied upon the judgments given in the following cases: -

- Jay Aar Enterprises [2007 (210) ELT 459]

- Vikram Jain [2006 (205) ELT 735]

- Bhagwati Silk Mills [2006 (205) ELT 182]

¨ Appellant further contended that as per Notification No. 68/2007-Customs (NT) dated 16.07.2007, drawback is not available to 100% EOU. It was further contended that drawback is not available in their final product i.e. Guar Gum powder.

¨ It was further contended that the reply given to the show cause notice by them was not discussed in the impugned order and therefore, the impugned order is a non-speaking order. In support of this contention thay have relied upon the judgment given in the case of Wipro Computers Ltd [2001 (135) ELT 450].

Reasoning of the Order-in-Appeal: -

The learned Appellate Authority held as under: -

Ø The Commissioner (A) held that the appellant had correctly contended that there was no allegation in the show cause notice was raised that the relevant documents were not furnished by the appellant. The Adjudicating Authority had wrongly given the finding that relevant documents were not furnished by the appellant. The Commissioner (A) relied upon the judgment given in the case of Bhagwati Silk Mills [2006 (205) ELT 182] wherein the Hon’ble Tribunal had held that the order beyond show cause notice is not sustainable. Thus, it was held that the impugned order being beyond dhow cause notice was not sustainable.

Ø The learned Commissioner (A) further found that the allegation in the show cause notice was that the appellant claimed drawback and the Adjudicating Authority had viewed that “It appeared to the department that the goods are exported under the drawback claim scheme” whereas the appellant had contended that they have not availed the benefit of drawback scheme.

Ø Thus, the learned Commissioner (A) without going into the merits of the case, observed that the period involved in the appellant’s refund claim was from 17.09.2007 to 30.09.2007. During this period, the relevant exemption Notification was 40/2007-ST dated 17.09.2007 and not Notification No. 41/2007 dated 06.10.2007 which has been mentioned in the impugned order by the Adjudicating Authority as well as in the appeal memo and the grounds of appeal filed by the appellant.

Ø Consequently, the Commissioner (A) held that the Notification No. 40/2007-ST, dated 17.09.2007 did not contain any condition similar to the condition as prescribed at clause (e) to proviso in para 1 of the Notification No. 41/2007-ST dated 06.10.2007. Hence in terms of Notification No. 40/2007-ST dated 17.09.2007, refund cannot be denied on the ground that the goods have been exported under Drawback scheme.

Decision of the Appellate Authority: -

Impugned order-in-original set aside. Appeal allowed.

Comments: -

There are number of show causes notices which have been issued by the department. Even the provisions are not checked as well as documents are not checked. Like in the instant case, an EOU has claimed the refund and they are eligible to claim the drawback. Further, their final product does not have rate of drawback prescribed by the Government. Still further, the notification at relevant time does not have clause that the drawback should be claimed. Thus, the show cause notice was issued without considering the rules or the documents. Even the Adjudication Officer did not consider the reply and denied the claim on other ground. Thus, it is seen that the complete scheme of refund of service tax is full of confusions. Furthermore, the department does not want to give the claim. It is also true that the number of conditions were prescribed in the notification which cannot be fulfilled. Now, the scheme is revamped and made easy. We hope that the refund will be granted to exporters.

But we have already represented that in place of giving exemption by way of refund, the straight forward exemption should be given to the exporters. Consequently, this cumbersome procedure of refund can be avoided. It is time consuming for both the department as well as the exporters. The only beneficiaries from the same are Government and the consultants.

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PJ/CASE STUDY/2009-10/036
30 March 2010

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