2022 (1) TMI 956 - AT - Service Tax

Tribunal grants refund for export services, emphasizes procedural fairness

The Tribunal allowed the appeal of M/s. Ozone Plant Design Service Private Limited, directing the refund of Rs. 68,02,513/- along with interest under ... Refund claim - export of consultancy engineering services - services said to have been exported by the appellant to Wasco Engineering - contention of the appellant is that the recipient of service, which is Wasco Engineering, is located outside India and, therefore, the services rendered by the appellant to Wasco Engineering would qualify as “export of services” - HELD THAT:- It needs to be noted that earlier the Central Government made the “Export of Services Rules, 2005” by Notification No. 9/2005-ST, dated 03.03.2005. Subsequently, the Central Government made the “Place of Provision of Services Rules, 2012” by Notification No. 28/2012-ST dated 20.06.2012. These 2012 Rules were in supersession of the Export of Services Rule, 2005 that had been notified by Notification No. 9/2005-ST dated 03.03.2005. Rule 3 of the 2012 Rules deals with place of provision generally and it provides that the place of provision of a service shall be the location of the recipient of service. The Commissioner (Appeals) found that though Wasco Engineering had entered into a contract with Cairn India for inland transportation, installation and commissioning of the electric power house at Rajasthan but the scope of the Agreement was for performance of services at Rajasthan and, therefore, the conditions laid down in rule 3 of Export of Services Rule, 2005 read with rule 6A of the Service Tax Rules had not been fulfilled - In the first instance, the Commissioner (Appeals) wrongly placed reliance upon rule 3 of the Export of Services Rules, 2005, which Rules, had been superseded by the 2012 Rules w.e.f. 20.06.2012. A perusal of the Agreement between the appellant and Wasco Engineering shows that the appellant was required to perform the services for which Wasco Engineering was to make the payment to the appellant. There is no flow of consideration from Cairn India to the appellant - this apart, the Agreement for performance of service was executed between Wasco Engineering and the appellant. Wasco Engineering was stated to be a company incorporated in Singapore having its principal place of business at No. 5 Pandan Road. The service was, therefore, required to be provided by the appellant to Wasco Engineering located outside India. The business establishment of Wasco Engineering is in Singapore and it has received the services from the appellant, though, under the Agreement the appellant was to provide the service within India for and on behalf of Wasco Engineering. The finding recorded by the Commissioner (Appeals) is, therefore, not on a correct interpretation of the Service Tax Rules and the 2012 Rules - It cannot be doubted that the consultancy engineering services provided by the appellant to Wasco Engineering would qualify as export of service and the findings to the contrary recorded by the Commissioner (Appeals) cannot be sustained. In the present case, upon filing of the refund claims, only a deficiency memo was issued to the appellant requiring the appellant to appear on a particular date and produce the required documents indicated in the memo to substantiate the claim. What information was required to be provided by the appellant has been stated in the deficiency memo and they relate to the location of the project where the services were provided by the appellant, copy of the Agreement with the service receiver and bank realization certificates, amongst others. This deficiency memo does not even remotely indicate the reason why the refund claim would be rejected. It was, therefore, obligatory on the Department to have issued a show cause notice to the appellant before rejecting the claim, since seeking information on certain matters would not suffice. Section 83 of the Finance Act makes applicable the provisions of sections 11B and 11BB of the Excise Act in relation to service tax as they apply in relation to duty of excise. Thus, the provisions of section 11B and 11BB of the Excise Act would also be applicable - appeal allowed - decided in favor of appellant. Issues Involved:1. Rejection of refund claim amounting to Rs. 68,02,513/-.2. Requirement of a show cause notice before rejecting refund claims.3. Entitlement to interest on the refund amount.Detailed Analysis:1. Rejection of Refund Claim:The appellant, M/s. Ozone Plant Design Service Private Limited, registered under 'consultancy engineering services,' exported services to various overseas clients, including M/s. Wasco Engineering Technology PTE Limited, Singapore. The appellant filed three refund claims totaling Rs. 72,84,585/- under rule 5 of the CENVAT Credit Rules, 2004. The Assistant Commissioner sanctioned only Rs. 4,82,072/- and rejected the balance Rs. 68,02,513/-. The primary reason for rejection was that services provided to Wasco Engineering were actually rendered to Cairn India, located in India, thus not qualifying as 'export of services' under rule 6A of the Service Tax Rules.The Tribunal found that the appellant had an agreement with Wasco Engineering, a company based in Singapore, and the services were to be provided for Cairn India as per the contract. The Tribunal noted that the place of provision of service is the location of the recipient, which in this case is Wasco Engineering in Singapore. Thus, the services qualify as 'export of services,' refuting the Commissioner (Appeals)'s reliance on the Export of Services Rules, 2005, which were superseded by the Place of Provision of Services Rules, 2012. The Tribunal cited the decisions in Gap International Sourcing (India) Pvt Ltd. and Paul Merchants Ltd., affirming that the services rendered to Wasco Engineering qualify as export of services.2. Requirement of Show Cause Notice:The appellant contended that the Department should have issued a show cause notice before rejecting the refund claims. The Tribunal agreed, stating that a deficiency memo does not suffice as it merely seeks additional information without indicating reasons for potential rejection. The Tribunal referenced the decision in Sidheshwar SSK Ltd., emphasizing that a show cause notice is necessary to ensure procedural fairness and adherence to principles of natural justice.3. Entitlement to Interest:The appellant argued that it is entitled to interest on the refund amount if the appeal is allowed. The Tribunal referenced the Supreme Court's decision in Ranbaxy Laboratories Ltd., which held that interest under Section 11BB of the Central Excise Act, 1944, commences from the date of expiry of three months from the date of receipt of the application for refund. Section 83 of the Finance Act makes sections 11B and 11BB of the Excise Act applicable to service tax, thus entitling the appellant to interest on the refund amount.Conclusion:The Tribunal set aside the impugned order dated 26.08.2016 to the extent it rejected the refund of Rs. 68,02,513/-. The appellant is entitled to this refund amount along with interest as per section 11BB of the Central Excise Act, 1944. The appeal was allowed in favor of the appellant.