SEZ Refund Denial Overruled by Tribunal: Compliance with SEZ Act Mandatory

The Tribunal held that the denial of refund for services wholly consumed within the SEZ under Notification No. 15/2009 cannot override the provisions of the SEZ Act. Refund is admissible unless the service provider's assessment was reopened and refund was given to them, in line with the Supreme Court decision in Commissioner of Central Excise vs. MDS Switchgear Ltd. The Tribunal also emphasized that once refund is provided under Notification No. 9/2009, denial cannot occur for procedural infractions, citing the case of Intas Pharma Ltd. vs. Commissioner of Service Tax, Ahmedabad. The appeals were allowed with consequential relief, if any.

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Issues:
Recovery of refund sanctioned to SEZ unit under Notification No. 9/2009 due to services consumed wholly within SEZ.

Analysis:
The appellant appealed against the Commissioner (Appeals) order for recovery of refund of Rs. 1,98,570 sanctioned by the adjudicating authority. The issue arose as the services received by the SEZ unit were wholly consumed within the SEZ, leading to the department ordering the recovery of the refund. The Notification No. 15/2009 amended the exemption scheme, stating that the refund would not apply if services were wholly consumed within the SEZ. The Ld. AR emphasized strict interpretation of notifications to prevent redundancy, citing the case of Collector of Customs, Bombay vs. United Electrical Industries Ltd. 1999 (108) E.L.T. 609 (S.C.).

The Tribunal analyzed the relevant notifications, particularly Notification No. 9/2009 and Notification No. 15/2009, which exempt taxable services provided to SEZ units and outline the conditions for refund of service tax paid. The SEZ Act 2005, under Section 26(i) (e), mandates exemption for all services imported into the SEZ for authorized operations, with Section 51 giving overriding effect over other Acts. The Tribunal held that the condition in Notification No. 15/2009 denying refund for services wholly consumed within the SEZ cannot nullify the overriding provisions of the SEZ Act. Refund is admissible unless the assessment at the end of the service provider was reopened and refund was given to them, supported by the Supreme Court decision in Commissioner of Central Excise vs. MDS Switchgear Ltd. - 2008 (229) ELT 485 (SC).

The Tribunal further emphasized that once refund is provided under Notification No. 9/2009, the provisions of Section 11(B) of the Central Excise Act come into play, preventing denial of refund for procedural infractions. Citing the case of Intas Pharma Ltd. vs. Commissioner of Service Tax, Ahmedabad - 2013 (32) STR 543 (Tri-Ahmd), the Tribunal established that refund cannot be denied for paying service tax that should not have been paid. The Tribunal rejected the argument that the SEZ unit's management of various units outside SEZ to encash unutilized CENVAT credit violated the legal framework, distinguishing it from the case of Everest Industries Ltd. where refund claims were rejected for different reasons related to CENVAT credit rules. The Tribunal allowed the appeals with consequential relief, if any, pronounced on 07/01/2015.

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