The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a manufacturer-exporter cannot be denied refund of service tax on input services merely because the exports were routed through a canalising agency such as MMTC Ltd. 

The bench of  K. Anpazhakan (Technical Member) ruled that where the exporter actually received and paid for the input services used in connection with exported goods, the refund under Notification No. 41/2012-ST cannot be rejected solely because the export documentation and foreign exchange realization were in the name of MMTC Ltd. 

The appellant had filed a refund claim on June 10, 2013 under Notification No. 41/2012-ST, seeking refund of service tax paid on input services used for export of manganese ore. However, the refund was rejected by the department on several grounds.

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The authorities observed that certain invoices did not match the export invoice, the Bills of Lading were issued in the name of MMTC Ltd., the export proceeds were realized by MMTC Ltd. in convertible foreign exchange, and the Bank Realisation Certificates (BRCs) also stood in MMTC’s name. Based on these facts, the department concluded that MMTC Ltd. was the actual exporter and, therefore, the appellant was not entitled to claim the refund. 

Before the Tribunal, the appellant explained that during the relevant period, exports of manganese ore falling under Customs Tariff Heading 26020000 could legally be undertaken only through the canalising agency, MMTC Ltd., in accordance with the Foreign Trade Policy.

The company argued that while MMTC entered into the export contract with the overseas buyer, it simultaneously executed a corresponding back-to-back contract with the appellant. Under this arrangement, ownership of the goods passed to MMTC only after the goods were loaded onto the vessel.

The appellant further submitted that it had itself received and paid for all export-related input services forming the basis of the refund claim. Although the foreign buyer remitted export proceeds to MMTC, the consideration was subsequently passed on to the appellant in accordance with the contractual arrangement. Therefore, there existed a direct nexus between the exported goods, the input services, and the refund claimed. 

The appellant also relied upon the Supreme Court’s decision in Daruka & Co. v. Union of India, wherein the constitutional validity of canalised exports through MMTC Ltd. had been upheld. Additionally, it pointed out that CESTAT had earlier decided an identical issue in its favour in another appeal involving the same assessee and substantially similar facts. 

After examining the contractual arrangement and the applicable Foreign Trade Policy, the Tribunal observed that the appellant was legally required to export manganese ore through MMTC Ltd. as the notified canalising agency.

The Bench found that the appellant had actually procured the export-related services, paid for them, and utilized them for the export of goods. Although MMTC formally received the export proceeds from the foreign buyer, those proceeds were subsequently transferred to the appellant under the back-to-back contractual arrangement.

Accordingly, the Tribunal held that there was an “inextricable nexus” between the exported goods and the input services for which refund had been claimed. 

Rejecting the Revenue’s contention that MMTC alone should be regarded as the exporter, the Tribunal held that even if MMTC was treated as the exporter for documentation purposes, the appellant remained the actual recipient and user of the input services connected with the exported goods.

Since the appellant had incurred the service tax burden and satisfied the substantive requirements of Notification No. 41/2012-ST, it was entitled to the refund of ₹4,77,714. The Tribunal consequently set aside the impugned appellate order and allowed the appeal with consequential relief in accordance with law. 

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