2024 (12) TMI 1406 - AT - Service Tax

Export refund claim allowed as limitation period starts from quarter-end not individual payment dates under Rule 6A

CESTAT Bangalore allowed the appeal regarding refund of unutilised CENVAT credit for exports under Rule 6A of Service Tax Rules, 1994. The Adjudicating ... Refund of unutilised CENVAT credit - ‘exports’ under the Rule 6A of the Service Tax Rules, 1994 (Export Rules) - export of service without payment of service tax - rejection on the ground of being barred by limitation as per N/N. 14/2016-CE(NT) dated 01.03.2016 - whether the time limit of one year for filing the refund claim under Rule 5 of the Cenvat Credit Rules, 2004 is to be counted from (i) the date of receipt of foreign exchange, or (ii) the end of the quarter in which the foreign exchange is received, in cases where the refund claims are filed on a quarterly basis? HELD THAT:- The Adjudicating Authority was satisfied with respect to the conditions required to be fulfilled under Rule 5 of Notification No. 14/2016-CE(N.T) except the condition of filing of the refund claim before the proper officer within one year from the date of receipt of payment in convertible foreign exchange. The only ground on which the Adjudicating Authority has rejected the refund claim is that the filing of the refund claim was not within one year from the date of receipt of the payment in convertible foreign exchange. The foreign convertible exchange is received by the appellant for the period January 2017 to March 2017 between 10.01.2017 to 09.03.2017, therefore, the last payment for the quarter was received on 09.03.2017. It is found that for the exports of January 2017, FIRC was received on 10.01.2017, for exports in February 2017, FIRC was received on 10.02.2017, and for the exports in March, the FIRC was received on 09.03.2017, so for the quarter January to March 2017, the refund claim has to be filed before 31 March 2018, in the subject case appellant has filed refund claim on 28.03.2018, which is within one year from the quarter ending January-March 2017. Conclusion - The one-year period for filing of the refund would commence from the end of the quarter January 2017 to March 2017, since the refund claims are filed on quarterly basis. The refund claim has been filed within one year from the end of the quarter January 2017 to March 2017 on 28.03.2018. The rejection of the refund of Rs. 93,39,310/- is not tenable, and hence the appeal needs to be allowed - Appeal allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the one-year time limit for filing refund claims under Rule 5 of the Cenvat Credit Rules, 2004, is to be computed from the date of receipt of foreign exchange or from the end of the quarter in which the foreign exchange is received, in cases where refund claims are filed on a quarterly basis. Whether the refund claim filed beyond one year from the date of receipt of foreign exchange is barred by limitation. Whether the refund claim procedure under Rule 5 of the Cenvat Credit Rules and the related notifications should be interpreted strictly as exemption notifications or as beneficial provisions. Whether procedural lapses, such as delay in filing refund claims, can result in denial of substantive benefits under the Cenvat Credit Rules. Whether invoice-wise calculation of limitation period is legally required for refund claims under the Cenvat Credit Rules. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Computation of the One-Year Limitation Period for Refund Claims under Rule 5 of the Cenvat Credit Rules, 2004 Relevant Legal Framework and Precedents: Rule 5 of the Cenvat Credit Rules, 2004, read with Notification No. 27/2012-CE(NT) and Notification No. 14/2016-CE(NT), prescribes the procedure and limitation for refund of unutilized Cenvat credit. Section 11B of the Central Excise Act specifies limitation periods for refund claims, but it does not explicitly cover export of services. The Export of Services Rules, 2005, and Service Tax Rules, 1994, recognize that export of services is completed upon receipt of payment in foreign exchange, evidenced by Foreign Inward Remittance Certificates (FIRCs). Precedents include decisions by the Larger Bench of the Tribunal in M/s Span Infotech (India) Pvt. Ltd., which held that the relevant date for limitation in refund claims for export of services filed quarterly is the end of the quarter in which FIRC is received. Other supporting decisions include judgments from the Madras High Court and various Tribunal benches. Court's Interpretation and Reasoning: The Tribunal analyzed whether the one-year limitation period should run from the date of each FIRC or from the end of the quarter in which all FIRCs for that quarter are received. It noted that since refund claims are filed quarterly, it is consistent and practical to consider the limitation period from the quarter's end. This approach aligns with the objective of facilitating refunds of accumulated input credit to exporters and avoids undue hardship caused by invoice-wise limitation calculations. The Tribunal also referred to the constitutional principle from the Supreme Court's decision in Vatika Township, emphasizing that beneficial provisions should not be construed to impose retrospective burdens. Thus, the limitation period should be interpreted in a manner that promotes the refund objective. Key Evidence and Findings: The FIRCs for exports during January to March 2017 were received on 10.01.2017, 10.02.2017, and 09.03.2017 respectively. The refund claim was filed on 28.03.2018, which is within one year from 31.03.2018, the end of the relevant quarter. Application of Law to Facts: Applying the Larger Bench ruling, the Tribunal held that the refund claim was timely since it was filed within one year from the quarter-end date, not from individual FIRC dates. The adjudicating authority's rejection based solely on the date of receipt of foreign exchange was therefore incorrect. Treatment of Competing Arguments: The Revenue argued for limitation from the date of each FIRC, relying on a strict interpretation of Notification No. 14/2016. The appellant contended for the quarter-end approach, supported by judicial precedents and the practical filing mechanism. The Tribunal favored the appellant's interpretation, emphasizing the beneficial nature of the provisions and the need to avoid rigid application of limitation. Conclusion: The one-year limitation period for refund claims under Rule 5 of the Cenvat Credit Rules, 2004, in respect of export of services filed quarterly, is to be computed from the end of the quarter in which the foreign exchange is received. The refund claim filed within this period is not barred by limitation. Issue 2: Nature of Refund Provisions under Rule 5 of the Cenvat Credit Rules - Beneficial Provision vs. Exemption Notification Relevant Legal Framework and Precedents: Rule 5 of the Cenvat Credit Rules, 2004, and related notifications (No. 27/2012 and No. 14/2016) provide for refund of accumulated input credit to exporters. Exemption notifications under Section 93 of the Finance Act, 1994, grant tax exemptions and are interpreted strictly. The Supreme Court's decisions in Commissioner of Customs (Import) Vs. Dilip Kumar and Company and Novopan India Ltd. Vs. CCE & C, Hyderabad, emphasize strict interpretation of exemption notifications. The Larger Bench of the Tribunal in Krishna Food Products held that the Cenvat Credit Rules are beneficial legislation and should not be interpreted narrowly or strictly like exemption notifications. The Supreme Court in Government of Kerala Vs. Mother Superior Adoration Convent clarified that the strict interpretation applies to exemption notifications issued under Section 93, not to beneficial provisions. Court's Interpretation and Reasoning: The Tribunal distinguished the refund provisions under Rule 5 from exemption notifications. It noted that the relevant notifications were issued under Rule 5(1) of the Cenvat Credit Rules and not under Section 93 of the Finance Act. Therefore, these notifications cannot be categorized as exemption notifications requiring strict interpretation. The Tribunal emphasized the purpose of Rule 5 and the notifications: to refund accumulated input credit and zero-rate exports, which are beneficial objectives. Accordingly, the provisions should be construed liberally to promote export facilitation rather than to impose procedural bars. Key Evidence and Findings: The notifications relied upon by the appellant were issued under Rule 5(1) of the Cenvat Credit Rules and not under the exemption-granting provisions of the Finance Act. The Board's Circular No. 120/01/2010-ST clarified the beneficial nature of these refund provisions. Application of Law to Facts: The Tribunal applied the principle that beneficial provisions should be construed liberally and procedural lapses should not defeat substantive rights. It rejected the appellate authority's reliance on strict interpretation jurisprudence applicable only to exemption notifications. Treatment of Competing Arguments: The Revenue's reliance on strict interpretation of exemption notifications was rejected as misplaced because the refund provisions are not exemption notifications. The appellant's argument for liberal construction to advance the purpose of refund was accepted. Conclusion: Refund provisions under Rule 5 of the Cenvat Credit Rules and related notifications are beneficial provisions and not exemption notifications. They must be interpreted liberally to advance their purpose of refunding accumulated input credit to exporters. Issue 3: Effect of Procedural Lapses on Substantive Rights to Refund Relevant Legal Framework and Precedents: The Supreme Court in Mangalore Chemicals and Fertilisers Ltd. Vs. Deputy Commissioner and Commissioner of Central Excise Vs. Hari Chand Shri Gopal held that procedural non-compliance cannot deprive a person of vested substantive rights. The Tribunal in Sajan Services Pvt. Ltd. Vs. Commissioner of Pune-II also supported this principle. Court's Interpretation and Reasoning: The Tribunal recognized that the purpose of Rule 5 and related notifications is to refund accumulated input credit to exporters. Denying refund solely on procedural grounds such as delay in filing, when the substantive conditions are met, would defeat the legislative intent. Key Evidence and Findings: The appellant complied with all substantive conditions except for the limitation issue, which was found to be incorrectly applied. There was no evidence of misuse or fraud. Application of Law to Facts: The Tribunal applied the principle that procedural lapses should not result in denial of substantive rights and allowed the refund claim accordingly. Treatment of Competing Arguments: The Revenue's position that delay or procedural non-compliance warrants rejection was rejected in light of the settled law protecting vested rights. Conclusion: Procedural lapses, including delay in filing refund claims, should not result in denial of substantive refund rights when all other conditions are fulfilled. Issue 4: Requirement of Invoice-wise Calculation of Limitation Period for Refund Claims Relevant Legal Framework and Precedents: No statutory provision or notification mandates invoice-wise limitation calculation for refund claims under Rule 5 of the Cenvat Credit Rules. Court's Interpretation and Reasoning: The Tribunal held that there is no legal basis for invoice-wise calculation of limitation periods. Refund claims are to be filed on a consolidated basis, especially when filed quarterly, and limitation should be computed accordingly. Key Evidence and Findings: The appellant filed refund claims on a quarterly basis, and FIRCs were received at different dates within the quarter. Application of Law to Facts: The Tribunal applied the quarter-end approach to limitation, rejecting the Revenue's demand for invoice-wise limitation computation. Treatment of Competing Arguments: The appellant's argument against invoice-wise limitation was accepted; the Revenue's demand for such calculation was rejected. Conclusion: There is no requirement for invoice-wise calculation of limitation for refund claims under Rule 5; limitation is to be computed from the end of the quarter in which FIRCs are received for quarterly claims.