Convertible foreign exchange requirement satisfied by rupee receipt through authorised dealer with FIRC for export service refund

Receipt of export service consideration in Indian rupees through an authorised dealer, supported by a Foreign Inward Remittance Certificate and covered by the foreign exchange regulations, can satisfy the requirement of receipt in convertible foreign exchange for export-of-service refund purposes, so refund cannot be denied on that ground. Security services and air travel services used in providing the exported output services, and having a direct nexus with the export activity, qualify as admissible input services for refund purposes, so the refund denial on that basis is unsustainable.

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Issues: (i) Whether receipt of export service consideration in Indian rupees through an authorised dealer with a Foreign Inward Remittance Certificate satisfies the requirement of receipt in convertible foreign exchange under the Export of Service Rules, 2005; (ii) whether security services and air travel services used for providing export services qualify as admissible input services for refund purposes.

Issue (i): Whether receipt of export service consideration in Indian rupees through an authorised dealer with a Foreign Inward Remittance Certificate satisfies the requirement of receipt in convertible foreign exchange under the Export of Service Rules, 2005.

Analysis: The remittance was received in Indian rupees, but the bank issued Foreign Inward Remittance Certificates certifying that the payment was not received in non-convertible rupees. The decision turned on the foreign exchange regime under the Reserve Bank of India notifications and the Exchange Control Manual. The receipt of rupees from the account of a bank situated outside India and maintained with an authorised dealer is deemed repatriation of realised foreign exchange, and receipt in rupees through such banking channel is treated as receipt in convertible foreign exchange. The Court also relied on the principle that insisting on a formal route of conversion would defeat the substance of the transaction.

Conclusion: The condition of receipt in convertible foreign exchange was complied with, and the export of service claim could not be denied on this ground.

Issue (ii): Whether security services and air travel services used for providing export services qualify as admissible input services for refund purposes.

Analysis: The denial of refund on this count was not supported by the show cause notice, and the services had a direct nexus with the provision of the exported output services. On that basis, the services were treated as input services connected with the export activity.

Conclusion: The refund denial in respect of security services and air travel services was not sustainable.

Final Conclusion: The impugned order was modified by upholding only the admitted refund amount and setting aside the balance rejection, resulting in substantial relief to the assessee.

Ratio Decidendi: Receipt of export consideration in Indian rupees through an authorised dealer, accompanied by a Foreign Inward Remittance Certificate and covered by the foreign exchange regulations, can constitute receipt in convertible foreign exchange for the purpose of export-of-service refund entitlement.

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