03-02-2022 – Services provided to a client in India as per the agreement entered with the service receiver outside India on its behalf would amount to ‘export of services’; Issuance of Show Cause notice is obligatory on the department if it proposes to reject the refund claim

The Hon’ble CESTAT vide its Order dated 24.01.2022 in the matter of M/s Ozone Plant Design Service Private Limited v. Commissioner of Service Tax (Appeal – II), Delhi in Appeal No. – 53097 of 2016 held that services provided to a client in India on behalf of the service receiver located outside India shall be considered as export of services.  Further, it was also held that issuance of Show Cause Notice is obligatory on the department if it proposes to reject the refund claim.


  • The Appellant exported ‘Consultancy engineering service’ to various overseas clients, inter-alia, including M/s Wasco Engineering Technology PTE Limited, Singapore for whom the services were provided by the Appellant to M/s Cairn India Limited situated in Rajasthan for and on behalf of Wasco Engineering, Singapore.
  • Accordingly, Appellant filed refund claim(s) under Rule 5 of CENVAT Credit Rules, 2004 amounting to Rs. 72,84,585/- for export of services. Adjudicating Authority sanctioned the refund of Rs.4,82,072/- while rejected remaining amount of Rs. 68,02,503/-
  • The Assistant Commissioner accepted that the Appellant had exported consultancy engineering services to all the overseas client except Wasco Engineering. In regard to Wasco Engineering, the Assistant Commissioner concluded that the services were actually provided to Cairn India which was located in India, though the Agreement was with Wasco Engineering to provide services. Thus, the Appellant did not fulfill the conditions laid down in Rule 3 of the Export of Services Rule, 2005 read with Rule 6A of the Service Tax Rules as both the service provider and service receiver were located in India.
  • An appeal being preferred against the same, the Commissioner (Appeals) maintained the order passed by the Adjudicating Authority, however, remitted the matter back to determine whether the Appellant would also be entitled to interest on the aforesaid amount of Rs. 4,82,072 ordered to be paid to the Appellant. Therefore, an Appeal was filed by the Appellant before Hon’ble CESTAT seeking refund of balance Rs. 68,02,503/-.

Appellant’s Plea

  • Appellant submitted that it was necessary for the authority to have issued a SCN to the Appellant before rejecting the refund claims and mere issuance of the deficiency memo, which is in the nature of a query, does not serve the purpose. Thus, order rejecting refund is bad in law.
  • Merely because the end user of the service exported to foreign client is located in India cannot be made a ground to hold that export of services had not taken place.
  • The Appellant is entitled to interest also if is held that the Appellant is entitled to refund of remaining amount.


  • A perusal of the agreement between the Appellant and Wasco Engineering, Singapore clearly reveals that it is between Appellant and Wasco Engineering, Singapore only. That apart from this contract with the Appellant, the Wasco Engineering, Singapore had entered into another Contract with Cairn India for inland transportation, installation, Commissioning of the electrical power house in Rajasthan. Appellant agreed to perform such services on behalf of Wasco Engineering, Singapore and received consideration from Wasco only.
  • The Commissioner Appeals wrongly placed reliance on Rule 3 of the Export of Service Rules, 2005, which have been superseded by the Place of Provision of Services Rules, 2012 w.e.f. 20.06.2012.
  • As per the definition of ‘Service’ given in Section 65B(44), service means any activity carried out by a person for consideration, and there is no flow of consideration from Cairn India to the Appellant.
  • The Wasco Engineering is located in Singapore and the services have been provided to Wasco engineering only, though under the agreement, the Appellant was to provide service within India to Cairn India, thus, the Commissioner (Appeals) is not correct in interpretation of Service Tax Rules and the Place of Provision of Services Rules, 2012.
  • Referring to the decisions of the Tribunal in Gap International Sourcing India P. Ltd.   Commissioner of S.T., reported in2015 (37) S.T.R. 757 (Tri. – Del.), Paul Merchants Ltd. v. Commissioner of C. Ex., Chandigarh reported in 2013 (29) S.T.R. 257 (Tri. – Del.), Hon’ble Delhi Tribunal held that the services provided by the Appellant to Wasco Engineering would qualify as export of services.
  • For the second contention of the Appellant, it was held that the deficiency memo does not even remotely indicate the reasons of rejection of the refund claim and therefore, relying on the decision in the matter of Commissioner of C. Ex. & Cus., Aurangabad v. Sidheshwar SSK Ltd., reported in2011 (274) E.L.T. (Tri-Mumbai) held that it is obligatory on the part of the department to issue a SCN before rejecting the refund claim as seeking information through deficiency memo would not suffice the purpose.
  • Lastly for the third contention of the Appellant, referring to the Hon’ble Supreme Court’s decision in Ranbaxy Labortories, held that the Appellant would be entitled to interest as per Section 11B and 11BB of the Central Excise Act.

The Hon’ble CESTAT, Delhi with the above findings allowed the Appeal filed by the Appellant and set aside the impugned order dated 26.08.2016.

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