SEZ service tax refund immunity upheld for authorised operations despite services being consumed wholly within the zone.

Refund of service tax on architect, interior decorator and consulting engineer services used for authorised operations in a Special Economic Zone could not be denied merely because the services were consumed wholly within the SEZ. The SEZ Act, 2005 confers substantive immunity from service tax for taxable services provided to a developer or unit for authorised operations and has overriding effect over the Finance Act, 1994 framework. Notifications under section 93(1) of the Finance Act operate only as the procedural mechanism for refund and cannot curtail the exemption created by the SEZ Act. On a harmonious reading of the relevant notifications and SEZ provisions, the refund entitlement was upheld and the rejection by the lower authorities was set aside.

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Issues: Whether refund of service tax paid on Architect, Interior Decorator and Consulting Engineer services used for authorized operations in a Special Economic Zone could be denied on the ground that the services were consumed wholly within the SEZ under Notification No. 15/2009-ST.

Analysis: The exemption framework under the Special Economic Zones Act, 2005 grants immunity from service tax for taxable services provided to a developer or unit for authorized operations in an SEZ, and the Act has overriding effect. Notifications issued under Section 93(1) of the Finance Act, 1994 operate only as the procedural mechanism for refund and cannot curtail the substantive immunity created by the SEZ Act. On a harmonious construction of Notifications No. 9/2009-ST and 15/2009-ST with Sections 7, 26(1)(e) and 51 of the Special Economic Zones Act, 2005, the words excluding services consumed wholly within the SEZ could not be read as taking away the refund entitlement where the services were otherwise used for authorized SEZ operations.

Conclusion: The refund could not be denied on the stated ground, and the assessee was entitled to refund of the disputed amount.

Final Conclusion: The rejection of refund by the lower authorities was set aside and the appeal succeeded.

Ratio Decidendi: Procedural refund notifications issued under the Finance Act, 1994 cannot defeat the substantive exemption and overriding immunity from service tax conferred by the Special Economic Zones Act, 2005 for services used in authorized SEZ operations.

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