2025 (10) TMI 921 - AT - Service Tax

Seller not exporter under Notification No. 41/2012-ST; merchant-exporter ownership bars service tax refund, earlier rebates recoverable

CESTAT held that the appellant was not the exporter for the consignments and therefore not entitled to refund of service tax under Notification No. ... Refund of Service Tax paid on certain services in relation to export of Iron Ore in terms of Notification No. 41/2012-ST dated 29.06.2012 - NMDC who is the “exporter” qua the consignment exported or it is the MMTC who is the exporter? - HELD THAT:- A plain reading of Notification No. 41/2012, indicates that it provides for rebate by way of refund of service tax paid on taxable services which are received by an exporter of goods (emphasis supplied), and used for export of goods, subject to certain conditions. The Adjudicating Authority has not considered NMDC as exporter on multiple counts. The primary being that their name is not appearing as exporter on the shipping bill as exporter. This has been admitted by the appellant also except that they said that their names are appearing as a third party exporter on some of the Shipping Bills. The Adjudicating Authority has also noted that the NMDC were not eligible to export iron ore of Fe content more than 64% and above as per the Extent Policy and it was required to be exported through STE only, which in this case happened to be MMTC. Reliance was placed on the case of MMTC Ltd., Vs Commissioner of Central Excise, Visakhapatnam [2014 (8) TMI 511 - CESTAT BANGALORE], wherein, interalia, it was also observed that the export proceeds were being received by the MMTC and they were, after retaining their fixed percentage of 3%, paying the remaining amount to NMDC. In the case of Income Tax matter, the ITAT in the case of NMDC Ltd., interalia, noted that the appellant i.e. NMDC submitted that the transactions between NMDC and MMTC were in the nature of sale and purchase and therefore the amount earned by the appellant cannot be treated as commission paid by NMDC and therefore no TDS was deductible at the end of NMDC. On perusal of the Policy at Serial No. 73, it is noted that iron ore, other than that is specified under free category, were having certain restrictions in terms that the said export has to be through STE/MMTC. On perusal of Memorandum of Understanding (MoU) and Sale and Purchase Agreement, as well as other documents like sample Shipping Bills, Advance Authorisation etc., submitted by the appellant and note that MoU dated 09.05.2012 was made between Sumitomo Metal Industries Ltd., and MMTC and NMDC Ltd., - for Sale and Purchase of Indian iron ore. The concept of merchant exporter and manufacture exporter or third party exporter etc., has heavily relied upon by the appellant but we find that it is relevant for certain export benefits under the EXIM Policy, subject to the claims being covered within the definition of merchant exporter or manufacture exporter or third party exporter etc. In fact, it is noted that, in this case, through mutual agreement, MMTC has allowed NMDC to claim such certain export benefit which would obviously be covering their entitlement, if any, under EXIM Policy. This is a case where NMDC was restricted from exporting the iron ore of Fe Content after 64% while MMTC was fully permitted to export the said variety of iron ore. However, the MMTC had no such iron ore available being not in the business of mining. On getting a foreign buyer, MMTC agreed to supply the same after buying it from NMDC in terms of Sale Purchase Agreement with NMDC as also in terms of understanding under MoU. The terms and conditions of relevant documents would indicate that NMDC’s real scope was to deliver the goods at designated site of MMTC in the Port and it was the MMTC, who became owner thereafter and exported the same under their name - Since, the NMDC cannot be considered as exporter for these consignments and therefore were not eligible for claiming any rebate/refund in respect of any service tax paid by them, irrespective of the fact that when the said goods were purchased by the MMTC and same were subsequently exported by them. Their having got certain benefits under the EXIM Policy as merchant exporter or as third party exporter is of no consequence to decide the benefit of notification issued under Finance Act 1994, which was restricted only to the exporter of the goods, who have exported the goods. While it is a fact that taxes are not exported and some mechanism exist to reduce the tax or eliminate the taxes in respect of export goods however, this doctrine is always regulated through various measures, schemes, notifications notified by the Ministry of Finance or Ministry of Commerce etc., and there is no such general ground that merely because NMDC has paid certain service tax, it must be refunded back to him irrespective of the fact whether they have exported themselves or not - It is obvious that for the purpose of service tax, a separate notification has been issued to allow certain rebates, however, that was restricted to only to the exporter and since they are not the exporter therefore merely because they have paid service tax in respect of goods, which were purchased by exporter and in turn exported through plea of grant rebate is not sustainable. It is nobody’s case that provision for raising demand for erroneous refund existed in the statute. In so far as the issue whether the RSA has himself has reviewed the order and again issued a show cause notice for recovery of demand of erroneous refund or there has been an appeal to the earlier order vide which he has sanctioned the refund in the first instance needs to be examined. It is found from the facts that in respect of three appeals, where the refunds has been sanctioned initially, there has been a review of the said sanction order and subsequent to the decision by the competant appellate authority, the refund sanctioning authority has again issued the show cause notice for recovery of erroneous refund for which he was contesting. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the claimant of service-tax rebate for services 'received by an exporter of goods and used for export of goods' is the consignor/seller who delivered the goods at a designated port plot or the State Trading Enterprise (STE) that filed the shipping bill, received export proceeds and carried out the export formalities. 2. Whether the claimant can be treated as an 'exporter' under Notification No. 41/2012-ST by virtue of contractual arrangements (MoU and sale-purchase agreement), manufacture/merchant/third-party exporter labels under EXIM policy, or by relying on the inclusive definition of 'exporter' in the Customs Act. 3. Whether procedural non-compliance in the notification (e.g., conditions relating to shipping bill declarations, registration, and non-receipt of rebate on same shipping bill) can defeat substantive entitlement to rebate where correlation of services with exported goods is otherwise established. 4. Whether a refund once sanctioned can be subsequently recovered as an 'erroneous refund' under the recovery provisions without an appeal having been filed against the original sanction order, and whether the sanctioning authority's re-examination amounts to an impermissible review. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: IDENTITY OF 'EXPORTER' FOR PURPOSES OF NOTIFICATION No.41/2012-ST Legal framework: Notification No.41/2012-ST grants rebate of service tax on taxable services 'received by an exporter of goods and used for export of goods' subject to conditions; Customs Act definitions - 'export' (s.2(18)) and inclusive definition of 'exporter' (s.2(20)) - are relevant for interpreting who is an exporter in the export process. Precedent treatment: Coordinate bench decisions and administrative circulars have recognised merchant/manufacturer/third-party exporters in the EXIM context; some decisions allow rebates to merchant exporters in certain schemes. However, such precedents were distinguished where the notification's language and statutory scheme framed eligibility strictly in terms of the person effecting export formalities. Interpretation and reasoning: The Court construed 'exporter' in the notification in the light of Customs Act usage and the practical mechanics of export: the exporter is the person who takes the goods out of India and completes export formalities (shipping bill, bill of lading, filing export documents, realisation of foreign exchange). The contractual arrangement (MoU and sale-purchase agreement) showed that the seller delivered ore to buyer's (STE) designated port plot and, by agreement, title and risk functionally shifted to the STE prior to actual sailing (Article X), all export documentation was prepared and filed by the STE, and export proceeds were realised by the STE. The STE was an authorised State Trading Enterprise for the restricted commodity and alone was permitted to export that grade of ore under the EXIM policy. Thus, notwithstanding commercial arrangements that required the seller to perform certain port-side activities and pay charges on the buyer's account, the STE was the true exporter for the relevant consignments. Ratio vs. Obiter: Ratio - For purposes of Notification No.41/2012-ST, the person who carries out export formalities (shipping bill, export invoices, bill of lading) and realises export proceeds (i.e., the STE in the factual matrix) is the exporter entitled to claim rebate; contractual labels or back-to-back arrangements do not convert the seller into exporter where ownership, risk, documentation and foreign-exchange realisation vest with the STE. Obiter - Observations on commercial motivations and EXIM policy labels (merchant/manufacturer/third-party exporter) as generally not determinative under the Finance Act notification. Conclusion: The claimant who delivered ore at the STE's port plot is not the exporter for purposes of the notification; the STE that filed shipping bills, held export documents and realised foreign exchange is the exporter entitled to rebate. Claims by the delivering seller under Notification No.41/2012-ST are not allowable on the facts. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: EFFECT OF CONTRACTUAL ARRANGEMENTS, EXIM POLICY CATEGORIES AND CUSTOMS DEFINITIONS (MERCHANT/MANUFACTURER/THIRD-PARTY EXPORTER) Legal framework: EXIM Policy contains categories such as merchant exporter, manufacturer exporter and third-party exporter with scheme-specific consequences; Customs Act definitions are inclusive but tied to export formalities; Notification No.41/2012-ST is issued under the Finance Act and must be read strictly. Precedent treatment: Cases permitting rebate to merchant or manufacturer exporters under certain schemes were considered, but those authorities were held inapplicable where the impugned notification does not extend rebate to non-exporting sellers or where export of the restricted item is permitted only through an STE. Interpretation and reasoning: The Court distinguished EXIM policy doctrines (which allocate benefits for scheme-purpose classifications) from the strict eligibility wording of the Finance Act notification. Where EXIM policy allows third-party or merchant exporter classifications for specific incentives, that does not by itself expand entitlement under a distinct Finance Act notification unless that notification expressly accommodates such categories. Additionally, where export of a restricted commodity is permitted only through an STE, the STE's exclusive status and the realisation of export proceeds by the STE preclude treating the seller as exporter even if contractual clauses attempt to make the seller a retrospective owner. Ratio vs. Obiter: Ratio - EXIM policy labels and contractual characterisations cannot override the statutory and notification requirement that rebate is for services 'received by an exporter' who has effectively exported the goods; STE exclusivity in restricted exports is determinative. Obiter - Observations on theoretical possibility of multiple exporters under different fact patterns not squarely present. Conclusion: Merchant/manufacturer/third-party exporter concepts under EXIM policy do not automatically confer entitlement under Notification No.41/2012-ST where the statutory/export formalities and STE exclusivity demonstrate that the claimant was not the exporter. ISSUE-WISE DETAILED ANALYSIS - ISSUE 3: PROCEDURAL NON-COMPLIANCE AND SUBSTANTIVE ENTITLEMENT Legal framework: Notification prescribes procedural conditions (registration, declaration in shipping bill, non-receipt of rebate on same shipping bill, arithmetic accuracy) as prerequisites for rebate. Precedent treatment: Authorities relied upon by the claimant for the proposition that substantive entitlement cannot be defeated by procedural lapse were considered, but those authorities were found to concern different factual and legal matrices where entitlement and procedural prerequisites were differently framed. Interpretation and reasoning: The Court held that procedural conditions in the notification are mandatory preconditions to claim rebate; where the claimant is not the exporter as understood under the scheme, procedural compliance cannot be used to bootstrap substantive eligibility. The Court declined to accept that correlation of services with exported goods alone can override the requirement that the services be received by an exporter properly identified under the notification. Ratio vs. Obiter: Ratio - Substantive correlation of services to exported goods does not cure absence of the claimant's status as exporter or non-fulfilment of explicit procedural prerequisites in the notification. Obiter - Remarks on alternate relief avenues under other statutes (central excise rules) where appropriate. Conclusion: Procedural non-compliance and the claimant's non-exporter status bar the substantive rebate claim under Notification No.41/2012-ST despite the services' nexus with the exported goods. ISSUE-WISE DETAILED ANALYSIS - ISSUE 4: RECOVERY OF ERRONEOUSLY SANCTIONED REFUND AND REVIEW/REOPENING OF SANCTION ORDER Legal framework: Recovery under the Finance Act/appropriate recovery provisions permits recoupment of erroneously paid amounts; principles restraining administrative self-review of final orders and the need for appellate remedy where applicable were examined. Precedent treatment: Authorities addressing impermissible re-examination of refund sanctions by the sanctioning authority without appellate recourse were considered; factual distinction was made where the sanctioning authority either reviewed its earlier sanction or recovery proceedings culminated from appellate decisions by competent authorities. Interpretation and reasoning: The Court examined factual variations across appeals: in some matters the original refund sanction was followed by a review and subsequent show-cause for recovery (which raised issues of impermissible self-review), while in others the department had successfully appealed the sanction before the competent appellate authority leading to a lawful reversal and consequent recovery. The Court found that where the competent appellate authority had set aside the sanction on appeal, recovery proceedings under erroneous refund provisions were maintainable; where the recovery arose from an improper internal review without appellate adjudication, the question was context-sensitive and must be assessed on facts (and those matters were distinguished on the record). Ratio vs. Obiter: Ratio - Recovery of an erroneously sanctioned refund is permissible where the sanction has been validly set aside by competent appellate authority; administrative re-opening must be examined on facts to determine whether it amounts to impermissible review. Obiter - General statements on limits of administrative re-examination where no statutory power is invoked. Conclusion: Where the refund sanction was successfully appealed and set aside by competent authority, recovery for erroneous refund is sustainable; where recovery arose solely out of unilateral re-examination without appropriate appellate process, the validity depends on the specific procedural history (and those appeals were decided on this factual basis). OVERALL CONCLUSION The Court concluded that the claimant was not the exporter entitled to rebate under Notification No.41/2012-ST on the facts presented (export formalities, shipping bills, export documents, foreign-exchange realisation and STE exclusivity rested with the STE). Procedural prerequisites in the notification and the statutory scheme precluded allowance of rebate to the claimant; the departmental recovery where sanction was overturned on appeal is sustainable. All appeals were dismissed.