No Respite for Exporters on Service Tax Refunds – Troubles galore due to Illegal Levy of Service Tax!
FOR facilitating refund of service tax paid on certain taxable services utilized for export of goods Finance Ministry issued Notification No. 17/2009-ST dated July 7, 2009 in supersession of Notification No. 41/2007-ST dated October 6, 2007. In this new notification at S. No. 16 of the table annexed thereto, service tax paid on services commonly known as ‘terminal handling charges' classified under any sub-clause of sub-section (105) of Section 65 of Finance Act, 1994 is also made eligible for refund.
Now it appears that this new entry at S. No. 16 has put the exporters in a quandary. DDT has reliably learnt that officers in the field formations are issuing show cause notices to exporters for recovery of refunds granted under the erstwhile notification 41/2007-ST on the ground that this head was not provided for separately in the earlier notification. It appears that the department has taken a stand that the intention of the Government was not to allow the refund of service tax paid on terminal handling charges under the erstwhile notification.
The crux of the matter in this entire episode is whether ‘terminal handling charges' collected by the service providers for handling export cargo liable for any service tax at all in the first place and whether the activity can be properly classified under any of the currently defined taxable services in the statute.
In this connection, it may be noted that in terms of sub-section (23) of Section 65 of Finance Act, 1994, services provided by a container freight terminal or any other freight terminal are included in the definition of ‘cargo handling service'.
Further, ‘terminal handling charges' are collected by service providers like AAI, CFSs , CFTs , ICD etc for handling of import/export of cargo at the respective places and in all likelihood these service providers are liable to pay service tax under taxable service category of ‘cargo handling service'.
Since the CFSs / CFTs etc do not engage with the importers/exporters directly, such charges are usually collected as re- imbursible expenses (including by the service tax paid by the service providers) by the CHAs who directly deal with the importers/exporters (refer to TRU Letter No. B11 /1/2002- TRU dated 01.08.2002 Paras 10 and 11 of Annexure II thereof).
However, the definition of ‘cargo handling service' excludes handling of export cargo from its purview. Now, in view of this clear exclusion of handling of export cargo from the purview of ‘cargo handling service' the terminal handling charges collected by CFSs / CFTs etc for handling of export cargo is not liable for any service tax. If any service tax is collected from these service providers by the Government then such collection is clearly without the authority of law.
In spite of this specific exclusion in the Finance Act, 1994 and the impending legal position vis-à-vis collection of tax on a non-taxable service, it is surprising to note that the Ministry has still included this ‘category' of ‘terminal handling charges' in Notification 17/2009-ST leading to this unfortunate situation for the exporters.
When the service itself is non-taxable and by mistake of law if any service tax is paid by the service providers and collected from the exporters, is there any justification for the departmental authorities to issue show cause notices denying refund? Further, is there any remedy available for the exporters to wriggle out of this unfortunate mess?
If any service tax was indeed paid by the service providers on terminal handling charges collected on export cargo then such collection of tax by the Government without the authority of law being illegal has to be refunded forthwith. Though provisions of Section 11B (vis-à-vis time limit) are not applicable in such a scenario, such refunds are subject to the principles of unjust enrichment as laid down by several decisions of the Supreme Court.
The question that follows is whether the exporters who bore the burden of this illegal tax liability eligible to claim refunds. Though the provisions of Section 11B are not applicable directly in such instances, the principle mentioned therein that buyers are also eligible to claim refund of duties/taxes may be adopted to allow refunds.
The Ministry should take appropriate steps to rectify the notification and direct the field formations to process the refund claims swiftly.