2023 (5) TMI 242 - AT - Service Tax

Tribunal Overturns Refund Rejection, Grants Exporter Full Claim for Iron Ore Testing Services.

Doddanavar Brothers (EOU Division) Versus Commissioner of Central Excise, Belgaum

The Tribunal set aside the impugned order, allowing the appellant's refund claim. The appellant, an exporter of iron ore, initially had a refund claim of ... Partial rejection of claim for refund of tax - documentary evidence in support of technical testing and analysis was not available - supplier not listed in the contract between appellant and the buyer overseas for not having been filed within 60 days from the end of the quarter in which exports had been effected - HELD THAT:- The present dispute relates to refund claimed by application dated 8th August 2008 in relation to exports effected before April 2008 that should, under the prevailing procedure, have been filed by end of May 2008. By amendment of November 2008, claims were permitted to be filed within six months from the last date of the quarter in which the exports took place and, considering the difficulties expressed by the trade, Central Board of Excise & Customs (CBEC) clarified in March 2009 that the new deadlines would be applicable to exports of the last quarter of the financial year preceding the amendment also, subject to such applications having been filed. That the reimbursement scheme, which at the time of effecting the exports requiring claims to be filed within two months from closure of the relevant quarter and, since then, extended to six months from closure of the relevant quarter, enabled the appellant, thereby, to seek relief thereon till 30th September 2008 in relation to exports effected till 31st March 2008 is a reasonable deduction - The impugned order has also not adduced any reason for not extending the benefit that the clarification circular of the Central Board of Excise & Customs (CBEC) considered appropriate for refunds pertaining to the period of dispute. Non-compliance with serial no. 3 in the Schedule to the notification prescribing the manner of reimbursement - HELD THAT:- The sole condition is that a written agreement between the buyer and the seller should stipulate ‘testing and analysis' of the export goods. As pointed out by Learned Counsel, there is no restriction on the number of, or location at which, tests are to be carried out. The precaution of carrying out such tests before shipment, to minimise the risk of non-acceptance of cargo before loading on outbound conveyance, is not beyond the scope of the eligible service in the impugned notification; nor has it been attributed to any activity other than in relation to the export goods. The denial of refund on such a rigorous consideration is not in accordance with the spirit of reimbursement designed as a policy instrument. There are no reason to sustain the impugned order - the rejection of refund claim is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a claim for reimbursement of service tax paid on a 'technical testing and analysis' service can be denied on the ground that the service-provider is not named in the export contract when the contract with the overseas buyer stipulates testing and analysis of the export goods. 2. Whether claims for refund/reimbursement of service tax in respect of exports effected prior to an amending notification are time-barred where an amending notification and subsequent CBEC clarification extended the prescribed filing period - i.e., whether the extended filing window applies retrospectively to exports made before the amendment. 3. Whether rigid administrative requirements and literal enforcement of documentary/positional prerequisites under the reimbursement notification may defeat the purpose of the scheme and therefore mandate a liberal construction in favour of exporters operating under the EOU/FTP framework. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility of 'technical testing and analysis' where supplier not named in buyer-seller contract Legal framework: The reimbursement scheme prescribes eligibility for refund of service tax where services procured are integrally connected to export of goods; the Schedule to the empowering notification requires, inter alia, a written agreement between buyer and seller stipulating 'testing and analysis' of the export goods as a condition for reimbursement. Precedent treatment: The decision notes prior tribunal authorities and administrative clarifications that interpret the Schedule's conditions functionally rather than mechanically. No Supreme Court authority directly on point is treated as overruling the proposition that location/number of tests is immaterial. Interpretation and reasoning: The Court construes the Schedule's requirement as satisfied where the written contract between exporter and overseas buyer stipulates testing and analysis of the export goods. There is no textual restriction in the notification (Schedule serial no.3) limiting tests to a single occasion or to a particular location; thus tests carried out at the exporter's premises to avoid post-shipment disputes fall within the ambit of the eligible service. The fact that the specific service-provider is not listed in the export contract does not negate the contractual stipulation of testing and analysis nor transform the activity into a non-eligible service. Rigid scrutiny that equates absence of the supplier's name with non-eligibility is inconsistent with the policy objective of the scheme. Ratio vs. Obiter: Ratio - the contractual stipulation for 'testing and analysis' is the operative requirement for eligibility and the notification does not confine testing to a particular location or single occurrence; denial for absence of the supplier's name is not warranted. Obiter - specific factual observations about commercial prudence in conducting pre-shipment tests to avoid disputes. Conclusion: The refund denial insofar as it rests on the supplier not being named in the contract is unsustainable; the testing carried out at the exporter's site qualifies as an eligible input service under the notification. Issue 2 - Temporal applicability of the amended filing period and CBEC clarification (limitation/retrospectivity) Legal framework: The empowering notification prescribed a filing deadline (originally 60 days from end of quarter). An amending notification extended the period (to six months from end of quarter), and a later CBEC circular clarified applicability to exports of the last quarter of the financial year preceding the amendment; a subsequent notification revised the deadline again. Principles of administrative law and statutory interpretation govern whether procedural amendments and administrative clarifications apply retrospectively to pending or earlier transactions. Precedent treatment: The Court refers to authoritative Supreme Court pronouncements that procedural/beneficial circulars are intended for retrospective implementation unless clearly excluded, and to tribunal decisions taking differing views on whether sanctioning authorities can enable an extension of time not stipulated in the original notification. Earlier tribunal decisions disallowing extension absent express provision are noted and distinguished on their facts. Interpretation and reasoning: The Court accepts that the amending notification (extending the filing window) and the CBEC clarification were intended to provide a longer window for filing claims, including for the quarter immediately preceding the amendment. The CBEC circular expressly applied the longer deadlines to exports effected in the last quarter before amendment, and the Tribunal reasons that such an administrative clarification of a procedural/beneficial scheme should be given effect. Decisions refusing to consider claims filed beyond the originally prescribed limit are distinguishable where claims fall within the extended period as clarified by CBEC. The Court further reasons that where the amended deadline, as clarified, would have allowed the appellant to file within the extended window, refusal to grant that benefit requires explanation; none was furnished in the impugned order. Ratio vs. Obiter: Ratio - procedural amendments and beneficial administrative clarifications extending filing windows should be given effect to claims relating to the immediately preceding period where the authority has clarified such applicability; a claim filed within the extended/clarified period cannot be denied as time-barred. Obiter - observations on the difference in factual matrices of some tribunal rulings cited by the respondent. Conclusion: The portion of the refund claim rejected on limitation grounds was improperly denied; the appellant's claim filed within the period made available by the amendment and CBEC clarification is entitled to be considered and allowed. Issue 3 - Construction of the reimbursement scheme and the permissible degree of administrative rigour Legal framework: The reimbursement scheme operates within the EOU/FTP context where the policy aim is to avoid loading taxes on exported goods and to ensure that reimbursement applies where services were used to generate exports; administrative procedures exist to prevent misuse but must be reconciled with policy object. Precedent treatment: The Court cites jurisprudence favouring a liberal construction of procedural requirements in favour of exporters and against an over-rigorous administrative approach which frustrates the policy, and contrasts it with decisions endorsing strict compliance where the notification so prescribes. Interpretation and reasoning: The Tribunal highlights the tension between anti-evasion safeguards and the objective of the scheme. It holds that where conditions are procedural and the scheme is beneficial, some latitude in compliance is warranted so that the spirit of the scheme prevails over literal technicalities. Denial of refund on hyper-technical grounds (e.g., insisting on supplier's name in the export contract, or denying retrospective effect of procedural extension absent compelling reason) is inconsistent with policy and established principles permitting retrospective application of beneficial procedural measures. Ratio vs. Obiter: Ratio - administrative requisites under the reimbursement scheme should be applied in a manner consistent with the scheme's purpose; procedural conditions benefit from a liberal construction to avoid unjust denial of refunds. Obiter - general commentary on the comparative advantages of reimbursement vs. CENVAT monetisation for EOUs. Conclusion: The impugned order applied procedural requirements with undue rigidity; relief should be granted in favour of the claimant to give effect to the entitlement under the reimbursement notification as interpreted above. Overall Disposition Having found no sustainable basis for the two principal grounds of rejection (lack of contractual naming of the service-provider and alleged limitation), and having held that the amending notification and CBEC clarification apply to the period in question and that the testing service at the exporter's premises falls within the reimbursable service description, the Tribunal sets aside the impugned order and allows the appeal. (The Court's conclusions are rendered as the dispositive ratio of the decision.)