Refund apportionment for mixed SEZ and domestic services should follow service value, not area developed, for accuracy.

Where refund of cenvat credit relates to input services used partly for Special Economic Zone services and partly for Domestic Tariff Area services, apportionment should be made on a more verifiable and objectively ascertainable basis. The area-developed method was rejected because it was difficult to verify, could mask material differences in development and facilities, and did not clearly capture the relevant period of activity. The value of services rendered inside and outside the Special Economic Zone was held to be the more practical formula, so the refund was directed to be re-quantified on that basis, while remaining confined to the amount originally claimed if recomputation produces a higher figure.

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Issues: Whether refund of cenvat credit on input services used partly for services rendered to a Special Economic Zone and partly for services rendered in the Domestic Tariff Area should be apportioned on the basis of area developed or on the basis of the value of services rendered.

Analysis: The basis of apportionment by area developed was found unsuitable because it would be difficult to verify, the quality of development and facilities in the two areas could differ materially, and the period of development activity was not readily determinable. The value of services rendered inside and outside the Special Economic Zone was considered a more practical and readily ascertainable basis for working out the refund.

Conclusion: The refund is to be re-quantified on the basis of the ratio of the value of services rendered inside and outside the Special Economic Zone, in favour of the assessee.

Final Conclusion: The appeal succeeds to the extent that the refund computation must be redone on the value-based formula, with the refund confined to the amount originally claimed if the recomputation yields a higher figure.

Ratio Decidendi: Where refund apportionment depends on mixed use of input services for Special Economic Zone and non-Special Economic Zone services, the more verifiable and objectively ascertainable basis of apportionment should be preferred over an area-based formula.

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