Refund of service tax paid when the services were consumed outside India

The CESTAT, Ahmedabad in M/s. Aegis Limited v. Commissioner of Central Excise & ST, Surat-I [Service Tax Appeal No. 13528 of 2013-DB dated June 09, 2023] held that services which were consumed outside India, the out of scope of service tax and any tax paid by assessee on such services should be refunded.

Facts

M/s. AEGIS Ltd. (earlier M/s. Essar Engineering Ltd.) ("the Appellant") is engaged in the business of providing engineering consulting services.

The Appellant provided such services to M/s. Minnesota Steel Industries, LLC, USA and considered such services as export of services. However, received the consideration in INR from M/s. Essar Engineering Ltd. (as per the novation agreement between USA and Indian Company) and accidently paid service tax on such receipt of consideration.

The Appellant filed refund claim application on February 21, 2012 for seeking refund of mistakenly paid service tax.  

The Assistant Commissioner was of the view since, payment for said services has not been  received yet in convertible foreign exchange as per Rule 3(2)(b) of the Export of Services Rules, 2005, as required, thus vide an order dated April 30, 2012 ("the order in original") in the form of letter directed the Appellant to file the refund claim after receiving convertible foreign exchange.

Aggrieved by the order in originalthe Appellant filed an appeal before the Commissioner (Appeal)who vide order No. CCEA-SRT-I/SSP/247/2013-14/U/S/35A dated July 18, 2013 ("the Impugned Order") rejected the appeal on the ground that Assistant Commissioner's communication was only interim and administrative communication and no decision has been reached by him by passing any order on refund claim. 

Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT, Ahmedabad.

The Appellant contended that the order in original was passed without considering the ground raised by the Appellant in the refund application, that the service tax was not leviable since, the service rendered by the Appellant were consumed by M/s

Minnesota Steel Industries, LLC, USA outside India.

Issue

Whether the Revenue Department has right to tax services which are consumed outside the territorial jurisdiction of India?

Held

The CESTAT, Ahmedabad inService Tax Appeal No. 13528 of 2013-DB held as under:

• Observed that, an application of refund has been filed before the refund sanctioning authority, the said authority is duty bound to decide the refund application one way or the other.
• Held that, the action of the refund sanctioning authority by holding the refund application as premature is really an act of refusal to exercise a statutory duty to decide upon the refund application. Thus, the order of the refund sanctioning authority is not tenable.
• Further observed that, Section 35(1) of the Central Excise Act, 1994 ("the CE Act") uses words ‘decision’ or ‘order’ which means that even a letter issued informing the decision which affects the right of the assessee can be considered as an appealable order.
• Noted that, by virtue of the novation agreement M/s Essar Projects (India) Ltd. will be considered as the service provider and therefore the receipts of foreign exchange by M/s Essar Projects (India) Ltd. will amount to receipt of such foreign exchange by the service provider. 
• Relied upon the Judgement of Hon’ble Supreme Court in Ishikawa-Ima-Harima Heavy Industries Ltd. (2007 (6) S.T.R. 3 (S.C)) wherein court held that in respect of offshore services, there should be sufficient nexus between the rendition of services and territorial limits of India.
• Held that, since in the present case the whole service were rendered and consumed outside India which is beyond the taxable territory as per the Finance Act, 1994, hence not liable to service tax. 
• Set aside the Impugned Order and directed the Revenue Department to refund the amount deposited by the Appellant as service tax mistakenly.