2016 (3) TMI 231 - AT - Service Tax

Tribunal upholds refund for service tax on SEZ input services, rejects Revenue's appeal.

The Tribunal upheld the Commissioner (Appeals)'s decision to allow refund claims for service tax paid on input services used in SEZ operations by the ... Exemption from service tax for authorised operations in a Special Economic Zone - wholly consumed (for services received by SEZ developer/unit) - sharing between SEZ authorised operations and Domestic Tariff Area (DTA) unit - sales in Domestic Tariff Area under Rule 47 of SEZ Rules, 2006 - transfer/supply of surplus power as part of authorised operations - power of Commissioner (Appeals) to remand for de-novo adjudicationExemption from service tax for authorised operations in a Special Economic Zone - wholly consumed (for services received by SEZ developer/unit) - sharing between SEZ authorised operations and Domestic Tariff Area (DTA) unit - sales in Domestic Tariff Area under Rule 47 of SEZ Rules, 2006 - transfer/supply of surplus power as part of authorised operations - Whether refund of service tax claimed by the developer for specified services used for authorised operations in the SEZ was rightly allowed despite transfer of surplus power to DTA and whether the refund must be restricted under the notification where services are not wholly consumed within the SEZ. - HELD THAT: - The Tribunal held that the Assessee had been granted approval and authorised operation to set up a power-sector SEZ for supply of power to SEZs, EOUs and others, and Rule 47(3) of the SEZ Rules expressly contemplates transfer of surplus power to the Domestic Tariff Area on payment of duty on consumables/raw materials. The proviso and Explanation to Para 2(a) of Notification No.17/2011-ST distinguish between (i)/(ii) services wholly performed within SEZ and (iii) other services where the developer/unit must not own or carry on any business other than SEZ operations. Reading Para 2(a) and Para 2(d) harmoniously shows that the restriction in Para 2(d) (pro rata refund where services are shared with a DTA unit) applies when there is a DTA Unit or the developer/unit carries on a separate DTA business. The Revenue did not plead or establish that the Assessee had a DTA Unit or carried on business other than the authorised SEZ operations. Mere installation of transmission lines and sale of surplus power in DTA under Rule 47 does not, by itself, convert the activity into a separate business or a DTA Unit for the purposes of the notification, particularly where no CENVAT credit on raw materials for transmission into DTA was availed and where Ministry correspondence and approvals contemplated such transfers as part of authorised operations. Accordingly, rejection of refunds by invoking Para 2(d) was unwarranted and the Commissioner (Appeals) was correct in allowing the claims to the extent indicated by him. [Paras 15, 16, 17, 18, 19]Revenue appeals rejecting refund claims on the ground that services were not wholly consumed within SEZ and must be restricted under Para 2(d) are rejected; the Assessee's refund claims on account of specified services used for authorised SEZ operations stand sustained.Power of Commissioner (Appeals) to remand for de-novo adjudication - Whether the Commissioner (Appeals) had the power to remand certain refund claims to the Adjudicating authority for verification and de-novo adjudication, and the fate of the specific refund items remanded by Commissioner (Appeals). - HELD THAT: - The Tribunal noted binding reasoning of the High Court that the Commissioner (Appeals) in service tax appeals has the power to remand matters to the adjudicating authority for fresh adjudication where appropriate. The Assessee did not contest the remand directions and accepted verification by the adjudicating authority on several items (including classification of air transport services, reimbursement of expenses, non-availability of supporting documents, document sufficiency under Rule 4A, later approvals of service categories and similar heads). Given the Commissioner (Appeals) had remanded parts of the claims for verification and de-novo decision, the Tribunal directed de-novo adjudication by the Adjudicating authority on those remanded items. [Paras 20, 21, 22, 23]Appeals by the Assessee are disposed of by remanding the specified items to the Adjudicating authority for verification and de-novo adjudication; the Commissioner (Appeals) had the power to remand.Final Conclusion: The appeals filed by Revenue are dismissed; the Assessee's appeals are disposed of by remanding specified refund claims to the Adjudicating authority for de-novo adjudication as directed by the Commissioner (Appeals). Issues Involved:1. Eligibility of refund claims for service tax paid on input services used in SEZ operations.2. Whether the services were wholly consumed within SEZ.3. Authority of Commissioner (Appeals) to remand cases.4. Specific objections raised by the Assessee regarding rejection of refund claims.Detailed Analysis:1. Eligibility of Refund Claims for Service Tax Paid on Input Services Used in SEZ Operations:The Assessee, approved as a Developer for a Power Sector Specific SEZ, claimed refunds for service tax paid on various input services used for authorized operations in SEZ. The services included Banking and Financial Service, Custom House Agent, Works Contract Service, Repair & Maintenance Service, Rent-a-cab Service, Manpower Recruitment, Air Condition Restaurant, Renting of Immovable Property, etc. The jurisdictional Deputy/Assistant Commissioner initially rejected these claims, arguing that the services were not wholly consumed within SEZ and did not meet the notification conditions. However, the Commissioner (Appeals) allowed the refund claims on merits, partly remanding some cases for document verification.2. Whether the Services Were Wholly Consumed Within SEZ:The Revenue contended that the Assessee engaged in both SEZ and DTA operations, thus the services could not be considered as wholly consumed within SEZ. The Assessee argued that they only carried out authorized operations within SEZ and did not have any DTA Unit. The Tribunal found no evidence of a DTA unit operated by the Assessee and ruled that the services used for authorized operations within SEZ were eligible for refund. The Tribunal emphasized that mere supply of surplus power to DTA as permitted by SEZ Rules does not constitute carrying out business in DTA.3. Authority of Commissioner (Appeals) to Remand Cases:The Revenue challenged the Commissioner (Appeals)'s authority to remand cases. The Tribunal referred to the Hon'ble High Court of Gujarat's decision in Commissioner of Service Tax Vs Associated Hotels Ltd, which upheld that the Commissioner (Appeals) has the power to remand matters for de-novo adjudication. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.4. Specific Objections Raised by the Assessee Regarding Rejection of Refund Claims:The Assessee contested the rejection of refund claims on several grounds, including:- Service of transport by air for domestic journeys not covered under the approved service category.- Reimbursement of expenses.- Services not consumed in relation to authorized operations.- Lack of supporting documents or co-relation with submitted documents.- Services wrongly classified.- Service categories not approved at the time of refund claim but approved later.The Tribunal noted that the Commissioner (Appeals) had already remanded some issues for verification and found it appropriate for the Adjudicating authority to examine these issues on merit during de-novo adjudication.Conclusion:The Tribunal upheld the Commissioner (Appeals)'s decision to allow refund claims, rejected the Revenue's appeals, and remanded the Assessee's appeals for further examination by the Adjudicating authority. The Tribunal emphasized the importance of following SEZ Act and Rules, and the specific approvals granted to the Assessee for authorized operations within SEZ.