Issuance of Deficiency Memo not sufficient to reject Refund Claim, Notice is Mandatory: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench has held that the service tax department cannot justify the procedural violation of omission to issue a show-cause notice while rejecting the refund on ground that a deficiency memo was issued to the taxpayer.

The appellant registered itself with the Department under the taxable category of “consultancy engineering services” defined under section 65(31) of the Finance Act, 1994 5 and made taxable under section 65(105)(g) of the Finance Act. The appellant exported consultancy engineering services to various overseas clients, including M/s. Wasco Engineering Technology PTE Limited, Singapore6 for whom the services were provided to M/s. Cairn India Limited 7 situated at Barmer in Rajasthan for and on behalf of Wasco Engineering. Later, the appellants requested for refund on the services rendered to Wasco Engineering. However, the request for refund was rejected by the department.

The appellant contended before the Tribunal that non issuance of a show cause notice for denying any part of the refund claim had rendered the order bad in law.

CESTAT President Justice Dilip Gupta and Technical Member Mr. Anjani Kumar accepted the plea of the appellant and observed that in the present case, upon filing of the refund claims, only a deficiency memo was issued to the appellant requiring the appellant to appear on a particular date and produce the required documents indicated in the memo to substantiate the claim.

“What information was required to be provided by the appellant has been stated in the deficiency memo and they relate to the location of the project where the services were provided by the appellant, copy of the Agreement with the service receiver and bank realization certificates, amongst others. This deficiency memo does not even remotely indicate the reason why the refund claim would be rejected. It was, therefore, obligatory on the Department to have issued a show cause notice to the appellant before rejecting the claim, since seeking information on certain matters would not suffice,” the Tribunal said.

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