2016 (3) TMI 106 - AT - Service Tax

Refund of service tax on exempted services covered by Notification No.41/2007-ST - Denied as paid prior to export - Held that As per law if refund is not given in one quarter that shall be given in the next quarter. Therefore, embargo by the procedure would be a barrier to get the export incentive through refund of the service tax paid. Also denial of refund shall be a hurdle to the export as there being no one-to-one relationship prescribed by the notification between the input service and 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. So, if the refund is denied, such denial shall make the goods costlier and will be a burden to the export which may make that in-competitive in the global trade. - Decided in favour of appellant

Summary

Issues:
1. Entitlement to refund of service tax paid on exempted services under Notification No.41/2007-ST prior to export of goods.
2. Requirement of availing services during export to claim Cenvat credit.

Analysis:
1. The appellant contended that denial of refund of service tax paid on exempted services under Notification No.41/2007-ST, dated 96.10.2007, solely because the services were not availed prior to export, was unreasonable. As the appellant's primary business activity was export with no domestic clearances during the material period, establishing a direct relationship between services availed and exports made was deemed impractical. The appellant argued that denying the refund based on technicalities would contradict the exemption spirit of the notification, potentially discouraging exports, which are crucial for foreign exchange generation. The Tribunal acknowledged the necessity of not bypassing the notification condition but emphasized that denial of refund should not hinder export incentives, especially when no specific one-to-one relationship was mandated between input services and exports. Ultimately, the Tribunal allowed the appeal, considering the adverse impact of denying refunds on export competitiveness in global trade.

2. The departmental representative argued that since there was no provision in the law allowing refund of service tax paid before export, the refund claim should be denied. It was emphasized that services must be availed during export to claim Cenvat credit. However, the Tribunal noted that the core of the notification was exemption, and denying refunds by technicality could discourage exports, which are essential for foreign exchange earnings. The Tribunal highlighted that while the notification aimed at granting refunds, it was crucial to maintain the balance between exemption and refund provisions to ensure the competitiveness of exported goods in the global market. Consequently, the Tribunal concluded that denying refunds would increase the cost of goods and hinder export competitiveness, ultimately allowing the appeal in favor of the appellant.

In conclusion, the Tribunal's judgment emphasized the importance of balancing exemption provisions with refund mechanisms to promote exports and maintain competitiveness in global trade. The decision highlighted the adverse impact of denying refunds on export incentives and stressed the necessity of ensuring a conducive environment for exporters to thrive in the international market.