SEZ supplies without service tax are outside Rule 6(3) of the Cenvat Credit Rules, making demand and penalty unsustainable.

Services supplied without payment of service tax to a Special Economic Zone unit or developer for authorised operations fall outside the scope of Rule 6(3) of the Cenvat Credit Rules, 2004. The retrospective insertion of Rule 6(6A), effective from 10 February 2006, excludes the operation of sub-rules (1), (2), (3) and (4) in such SEZ supplies. Accordingly, the demand, interest and penalty were unsustainable, and the assessee obtained relief.

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Issues: Whether Rule 6(3) of the Cenvat Credit Rules, 2004 was applicable to services provided to a Special Economic Zone unit or developer, and whether the demand, interest and penalty could be sustained.

Analysis: The services were admittedly provided to an SEZ unit or SEZ developer. The inserted Rule 6(6A) of the Cenvat Credit Rules, 2004, brought in by Section 144 of the Finance Act, 2012 and the Eighth Schedule thereto with retrospective effect from 10 February 2006, excluded the application of sub-rules (1), (2), (3) and (4) where taxable services are provided without payment of service tax to a unit in a Special Economic Zone or to a developer for their authorized operations.

Conclusion: Rule 6(3) was not applicable to the impugned services. The demand, interest and penalty were unsustainable and the assessee succeeded.

Final Conclusion: The order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Services supplied without payment of service tax to an SEZ unit or developer for authorized operations are outside the ambit of Rule 6(3) of the Cenvat Credit Rules, 2004.

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