Refund on warranty replacement exports allowed when no sale proceeds arise and foreign exchange realisation is not required

Refund of service tax paid on courier services used for export of free warranty replacement goods is admissible where the export is made under a contractual warranty obligation and no sale proceeds are realised from the foreign buyer. In that setting, insistence on a bank realisation certificate is not justified in the same way as for ordinary commercial exports. Where the refund sanction has already attained finality and was not challenged, recovery of the sanctioned refund as an erroneous refund for want of foreign exchange realisation is not sustainable if the statutory and regulatory conditions are otherwise met.

---

---

Issues: Whether refund of service tax paid on courier services used for export of spare parts supplied as free warranty replacement was admissible under Notification No. 17/2009-ST dated 07.07.2009, and whether the refund earlier sanctioned could be recovered as an erroneous refund for want of foreign exchange realisation.

Analysis: The refund orders had already attained finality and the Revenue had not challenged those orders. On the facts, the exports were made as free warranty replacement under the contractual obligation with foreign dealers, so no monetary consideration flowed from the buyers for those replacement supplies. In such a situation, the insistence on a bank realisation certificate was not justified, and the requirement of realisation of sale proceeds could not be applied in the same manner as for ordinary commercial exports. The record also showed that the goods were exported as warranty replacements and that service tax had been paid on the courier services used for such exports. The attempt to recover the sanctioned refund through separate proceedings was therefore not sustainable.

Conclusion: The refund was admissible and the recovery of the sanctioned refund as an erroneous refund was not justified.

Final Conclusion: The appeals were allowed, the impugned order was set aside, and consequential relief followed.

Ratio Decidendi: Where export supplies are made free of cost under a warranty replacement obligation and the refund sanction has attained finality, denial or recovery of refund solely for want of foreign exchange realisation is unsustainable, particularly when the statutory and regulatory conditions are otherwise satisfied.

---