SEZ refund through ISD invoices cannot be denied on collateral challenge to service admissibility at recipient level.

Refund of service tax for an SEZ unit cannot be denied merely because the services were routed through Input Service Distributor invoices or because their admissibility was not separately challenged at the recipient unit level. Under Notification No. 12/2013-ST and Rule 7 of the Cenvat Credit Rules, 2004, common services used for authorised operations may be distributed through the ISD mechanism, and where the distribution records are separately maintained and audited without objection at the ISD level, the refund claim should not be rejected on a collateral challenge before the SEZ unit. The stated position is that the denial of refund was unsustainable and the assessee was entitled to the claimed refund.

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Issues: Whether refund of service tax paid on services distributed through Input Service Distributor invoices could be denied to an SEZ unit on the ground that those services were not common services or that their admissibility had not been separately established at the SEZ end.

Analysis: Notification No. 12/2013-ST dated 01.07.2013 grants exemption by way of refund to services received by an SEZ unit, and for common services used for authorised operations the distribution mechanism is governed by Rule 7 of the Cenvat Credit Rules, 2004. The invoices in dispute were issued by the Input Service Distributor located at the head office, the distribution records were separately maintained and audited, and no objection had been raised by the Revenue at the ISD level. Once the distribution of service tax has been dealt with in the ISD records, the SEZ unit cannot be denied refund on a collateral challenge to the nature or admissibility of those services at its end.

Conclusion: The refund could not be denied on the grounds taken in the impugned order and the assessee succeeded on the issue.

Final Conclusion: The denial of refund was unsustainable, and the SEZ unit was entitled to the claimed refund of service tax distributed through the ISD invoices.

Ratio Decidendi: Where ISD distribution has been separately maintained and accepted in audit, the SEZ unit's refund under the exemption notification cannot be rejected by re-agitating admissibility of those services at the recipient unit level.

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