Courier service for export of goods is not an 'input service'

We are exporters of silk goods and export goods through courier under drawback shipping bill. We are getting drawback on the (Free on Board) FOB value of our exports and not on the courier expenses for exports. We have not claimed any Cenvat credit against our exports. Our claim for refund of service tax paid to couriers has been rejected by Customs on the grounds that no refund is allowed on service tax on courier services when exports are made under drawback claim, according to clause (e) of the notification no. 41/2007-ST dated October 7, 2007. We seek your guidance on the correct position.

S.No. 10 of the notification referred by you allows refund of service tax paid on services provided by a courier agency to an exporter in relation to transportation of time-sensitive documents, goods or articles relating to export, to a destination outside India. This S.No. was introduced on February 19, 2008. So, for exports made prior to February 19, 2008 , the question of refund does not arise.

Clause (e) to the first proviso of the opening paragraph of the notification allowed refund provided the said goods have been exported without availing drawback of service tax paid on the specified services under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995; This clause has been omitted with effect from December 7, 2008. So, the issue relates to service tax paid to couriers during the period February 19, 2008 and December 7, 2008.

The question that arises is whether you have taken drawback of the service tax paid on specified service i.e. the courier service. Rule 2 (a) in the Rules referred above says that “drawback” in relation to any goods manufactured in India and exported, means the rebate of duty or tax, as the case may be, chargeable on any imported materials or excisable materials used or taxable services used as input services in the manufacture of such goods.

Obviously, unless the ‘courier service’ happens to be an input service, there is no question of drawback and any allegation that you have taken drawback of service tax on what is not an input service is devoid of merit.

Rule 2 (da) of the said Rules says that “input service” shall have the same meaning as is assigned to it in the Cenvat Credit Rules, 2004 (CCR). Rule 2 (l) (ii) of CCR covers outward transportation only upto the place of removal. There can be little doubt that courier service starts from the place of removal (or for that matter the point of sale). Therefore, it cannot qualify as ‘input services’

The conclusion is inescapable. Courier service for export of goods is not an ‘input service’ and so, there is no question of drawback of the same. Since drawback of service tax on what is not an input service is not admissible, there is no question of your taking it. So, your refund claim cannot be denied.The only point that remains is whether your FOB value includes the courier charges. Since it does not, you are eligible for refund.