2010 (12) TMI 299 - AT - Service Tax

Manufacturer denied service tax refund for export services under Notification No. 41/2007. Appeals rejected, compliance emphasized.

The Tribunal held that the manufacturer is not entitled to a refund of service tax paid on services used for export by the exporter under Notification No. ... Refund of the service tax - Export of goods - As per Notification No. 41/2007-Service Tax, the assessee cannot claim the refund of Service Tax paid on the services which are being used for the purpose of export of goods by the merchant exporter - The exporter (who has availed the service for export) is entitled to claim the refund of service tax paid by them and not the manufacturer of the goods - As per the case of CCE, Chandigarh v. Indian Overseas Corporation ,the Hon’ble High Court of H.P. has also taken the same view that the exporter is entitled to claim rebate, not the manufacturer - Held that: the assessee is not entitled to take refund of service tax paid on the services availed by the exporter for export of the goods - Hence, the appeals filed by the assessee are rejected and the appeals filed by the Revenue are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a manufacturer who pays service tax on services availed by a merchant-exporter for export of the manufacturer's goods is entitled to refund under Notification No. 41/2007-Service Tax. 2. Whether the Notification permits refund only to the exporter who availed the services (including merchant-exporter) and excludes any other person (including the manufacturer) from claiming refund. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement of a manufacturer who paid service tax on services availed by a merchant-exporter Legal framework: Notification No. 41/2007-Service Tax provides for refund of service tax paid on services that are received by an exporter and used for export of goods. The Notification's operative language ties refund entitlement to the exporter in respect of services used for export. Precedent treatment: The Tribunal refers to the view adopted by the High Court that a refund under the Notification is available to the exporter and not to third parties; that precedent is followed rather than distinguished or overruled. Interpretation and reasoning: The Notification requires that the service be received by an exporter and be used for export. Where services are availed by a merchant-exporter for export of goods manufactured by another (the manufacturer), the Notification's wording confines refund entitlement to the exporter who actually received/availed the service. The Tribunal reasons that no other person can step into the exporter's shoes to claim refund merely because they are the manufacturer of the goods exported. Ratio versus obiter: The conclusion that a manufacturer cannot claim refund where the services were availed by the merchant-exporter is applied as the ratio in these appeals; reliance on the High Court's restrictive interpretation is treated as binding precedent for the issue considered. Conclusion: A manufacturer who pays service tax pursuant to an agreement to cover services availed by a merchant-exporter is not entitled to refund under Notification No. 41/2007; refund is available only to the exporter who availed the service. Issue 2 - Scope of 'exporter' under Notification No. 41/2007-Service Tax and exclusion of other claimants Legal framework: The Notification's eligibility hinges on (a) receipt of the service by an exporter, and (b) use of the service for export of goods. The identity of the claimant is thus limited by the Notification's text. Precedent treatment: The Tribunal explicitly follows the High Court's restrictive reading that the Notification grants rebate/refund to the exporter (even if a branch or merchant-exporter) and excludes manufacturers or other non-exporters from claiming the refund. Interpretation and reasoning: The Tribunal emphasizes the plain meaning of the phrase 'service is to be received by an exporter' and the condition that the service be 'used for export of goods.' Where a merchant-exporter avails services for export and the manufacturer later seeks refund (whether by agreement or payment on behalf of the exporter), the Notification does not confer refund rights on the manufacturer. The Tribunal treats the agreement between manufacturer and merchant-exporter allocating payment obligations as insufficient to create statutory refund entitlement in the manufacturer. Ratio versus obiter: The holding that the Notification's entitlement is confined to the exporter and excludes any other person is applied as the operative ratio guiding disposal of the appeals; related observations on the effect of private agreements on statutory entitlement are consequential but not broader than required for the decision. Conclusion: The Notification is interpreted to allow refund only to the exporter who availed the services; other persons, including manufacturers who may have paid service tax pursuant to commercial arrangements, are not entitled to claim refund under the Notification. Disposition and practical effect The Tribunal, applying the statutory text and the High Court's restrictive interpretation, rejects refund claims made by manufacturers in respect of services availed by merchant-exporters and allows the Revenue's appeals. The appeals filed by claimants (manufacturers) are dismissed for lack of statutory entitlement; appeals filed by the Revenue are allowed.