Appellate authority overturns service tax order, grants refund to appellants, deeming demand unsustainable.

The appellate authority set aside the order imposing service tax and penalty in favor of the appellants, ruling that the demand for service tax was unsustainable as the services provided were considered export of services. Additionally, the rejection of the refund claim on the grounds of being time-barred was deemed unsustainable, and the appellants were entitled to a refund of the amount deposited as no levy was made in accordance with the service tax law. Both appeals were allowed in favor of the appellants, granting them consequential reliefs.

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Issues involved:
1. Liability to pay service tax on consideration received for services provided.
2. Rejection of refund claim on grounds of being time-barred.

Analysis:

Issue 1: Liability to pay service tax on consideration received for services provided
The appellants provided consultancy services to an overseas company and received payment in foreign currency. The dispute arose regarding the applicability of service tax on the consideration received. The Notification No.21/2003 exempted taxable services from service tax if payments were received in convertible foreign exchange. The appellants contended that the services provided were export of services and hence not liable to service tax. The Circular No. 56/5/2003 clarified that export of services remained tax-free even after the withdrawal of certain notifications. The Tribunal in a similar case held that service tax cannot be demanded if services were exported and payment was received in foreign exchange. The judgment was relied upon by the appellants to support their argument. The appellate authority, considering the facts and legal provisions, concluded that the demand for service tax and penalty was unsustainable. Therefore, the order imposing service tax and penalty was set aside in favor of the appellants.

Issue 2: Rejection of refund claim on grounds of being time-barred
The appellants filed a refund claim for the service tax paid along with interest, contending that no service tax was payable as the services provided were not taxable. The claim was rejected as time-barred under Sec. 11(B) of the Central Excise Act, 1944. The appellants argued that the amount paid was not service tax but deposited erroneously under pressure from the department. They relied on a judgment by the Hon'ble High Court of Kerala to support their position. The High Court's judgment distinguished between mistake of fact and mistake of law regarding tax payments. The appellate authority, considering the arguments and legal precedents, held that if there was no levy in accordance with service tax law, the refund claim cannot be denied on the ground of limitation. Therefore, the order rejecting the refund claim was deemed unsustainable, and the appellants were entitled to a refund of the amount deposited.

In conclusion, both appeals were allowed in favor of the appellants, providing them with consequential reliefs.

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