In a recent case, the Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that mere filing of an appeal to challenge the order of the Tribunal or the High Court before the Apex Court is not really a valid ground to ignore or disregard the orders of the Tribunal, unless and until the same are stayed, suspended, or finally set aside.
National Engineering Industries Limited, the appellant/assessee is engaged in the manufacture of ball bearings and axle boxes and in ‘Consultancy Services’. The appellant is registered with the Service Tax Department and is duly paying service tax on the taxable services provided and received by it.
Electro Motive Diesel, Inc. ( EMD ), a company incorporated in the USA engaged in the manufacture of diesel locomotives, entered into a sales representation agreement with the appellant for appointment as a sales representative of EMD in India. The Indian Railways procured various components of locomotives from EMD through the appellant; however, the purchase orders were placed by the Indian Railways directly on EMD.
As per the terms and conditions mentioned in the purchase order, Indian Railways undertook to pay a commission to the appellant out of the total consideration payable by Indian Railways to EMD, i.e., instead of paying the entire consideration to EMD, the appellant received back the commission from EMD. The commission payable is deducted by converting into equivalent Indian rupees, and the balance is remitted to EMD.
The appellant filed a refund claim for the service tax paid thereon, relying on several decisions of the Tribunal, including those passed in their own case for the period from 2005 onwards.
An application for refund of service tax amounting to Rs. 11,11,899 paid on the export of services to EMD. A Show Cause Notice (SCN) was issued proposing rejection of the refund claim on the ground that the services provided to EMD do not qualify as exports of services as the appellant had not received the commission in convertible foreign exchange. An Assistant Commissioner rejected the refund claim on the ground that it did not satisfy the conditions stipulated in Rule 3(2) of the Export Services Rules, 2005. The Commissioner (Appeals) rejected the appeal in toto and upheld the OIO dated December 16, 2009.
While allowing the appeal, the CESTAT set aside the order passed by the Commissioner (Appeals). In compliance with the CESTAT’s Order, the Assistant Commissioner sanctioned an amount of Rs. 11,11,899 as a consequential refund to the appellant, based on a verification report of the jurisdictional range officer. The refund order has attained finality since no appeal has been preferred by the department before the higher forum.
The Show Cause Notice (SCN) has been issued under Section 11A of the Excise Act, 1944 proposing recovery of an amount of Rs. 11,11,899 refunded to the appellant, as erroneous inasmuch as the commission received by the appellant was in convertible Indian rupees; therefore, the condition of export of service contemplated under Rule 3(2) of the Export of Service Rules, 2005, was not compiled. Hence, the CESTAT had erred in allowing the appeal. The decisions of CESTAT pertaining to earlier periods and affirmed by the Rajasthan High Court are pending and were filed by the department before the Supreme Court.
The Commissioner (Appeals) dismissed the appeal of the appellant, upholding the aforesaid OIO dated 30.7.2021, on the ground that the basic condition of receipt of service in convertible foreign exchange, as per Rule 3(2) of the Export of Services Rule, 2005, is not complied with. If the same appellant is pending a decision before the Supreme Court, the appeals are therefore rejected.
The appellant contended that the issue raised in the present appeal, whether the refund granted to the appellant pursuant to the order of the Tribunal can be challenged by way of show cause notice under Section 11A of the Central Excise Act for recovering the amount refunded to the appellant, is no longer res integra.
The single bench of Binu Tamta (Judicial Member) has held that once the issue has been decided by the Tribunal that the appellant is entitled to the refund, the authorities below have no jurisdiction to order the recovery of the refunded amount unless the order of the Tribunal granting the refund is stayed or set aside by a higher forum.
The tribunal held that the authorities below have absolutely no regard for the orders passed by the tribunal, though, as per the judicial discipline, they are binding on them and they are required to follow the same. There have been decisions after decisions by the Tribunal and also by the Apex Court, specifically conveying that the orders by the Tribunal are binding on the lower authorities and there is no reason to differ from the same.
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