Export turnover under refund rules depends on who actually contracts and supplies the service; interest on erroneous refund needs fresh scrutiny.

For refund under Rule 5 of the CENVAT Credit Rules, 2004, export turnover and total turnover had to be computed by reference to the actual contractual and service-provider structure under the post-01.07.2012 service-tax regime. In Model-I, onsite services performed through overseas subsidiaries or branches were treated as export of service because the assessee contracted with the foreign client, received consideration in convertible foreign exchange, and satisfied Rule 6A conditions; the value was includible in export turnover. In Model-II, where the overseas subsidiary contracted with the foreign customer, the onsite services were not services provided by the assessee and their value was excluded from both export turnover and total turnover. Interest on erroneous refund was set aside for fresh consideration.

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Issues: (i) Whether onsite services provided through overseas subsidiaries or branch offices were export of services and includible in export turnover for refund under Rule 5 of the CENVAT Credit Rules, 2004. (ii) Whether the value of onsite services in Model-II was to be excluded from total turnover while computing refund under Rule 5. (iii) Whether interest on erroneous refund was sustainable and required reconsideration.

Issue (i): Whether onsite services provided through overseas subsidiaries or branch offices were export of services and includible in export turnover for refund under Rule 5 of the CENVAT Credit Rules, 2004.

Analysis: The service arrangement was examined separately for Model-I and Model-II under the post-01.07.2012 regime. For Model-I, the contract, invoices and receipt of consideration were found to be between the assessee and the foreign client. The overseas subsidiary or branch did not have a direct contract with the foreign customer in that model, and the services performed abroad were treated as part of the assessee's own supply. On that footing, the six conditions of Rule 6A of the Service Tax Rules, 1994 were held to be satisfied, including location of the provider in the taxable territory and receipt of convertible foreign exchange. The earlier pre-2012 decisions were distinguished because the governing legal framework had changed materially with Rule 6A, the place of provision rules and the amended refund formula.

Conclusion: In Model-I, the onsite component was held to be export of service and includible in export turnover, in favour of the assessee.

Issue (ii): Whether the value of onsite services in Model-II was to be excluded from total turnover while computing refund under Rule 5.

Analysis: In Model-II, the primary contract and invoices were found to be between the overseas subsidiary and the foreign customer, with the assessee supplying only the offshore component to its subsidiary. The onsite services were held not to have been provided by the assessee to the foreign customer and therefore not to form part of the assessee's export turnover. Since those onsite services were also not services provided by the assessee, their value could not be included in the assessee's total turnover for the refund formula. The adjustment made by excluding that value from both sides of the formula was upheld.

Conclusion: The exclusion of onsite-service value from both export turnover and total turnover in Model-II was upheld, in favour of the Revenue on this limited computation issue.

Issue (iii): Whether interest on erroneous refund was sustainable and required reconsideration.

Analysis: The assessee did not press the challenge on the merits of the refund computation in this appeal and questioned only the levy of interest on the erroneous refund. It was noticed that the adjudicating authority had not examined whether the amount, if retained, would have remained available in the CENVAT credit account for utilisation against domestic tax liability. The interest issue was therefore considered to require fresh determination by the original authority.

Conclusion: The levy of interest was set aside for fresh consideration and the matter was remanded on that limited issue, in favour of the assessee.

Final Conclusion: The Revenue's appeals failed on the substantive refund issues, while the assessee succeeded only on the interest question, which was remanded for reconsideration. The refund computation was otherwise sustained in the manner recorded in the order.

Ratio Decidendi: For refund under Rule 5, export turnover and total turnover must be computed according to the actual service-provider relationship and contractual structure under the governing service-tax regime; services not provided by the assessee to the foreign customer cannot be treated as the assessee's turnover, and a distinct levy of interest on erroneous refund requires independent examination of the credit availability and utilisation consequences.

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