SEZ refund of service tax upheld on principle, while factual invoice and evidence issues were remitted for verification.

Refund of service tax paid on input services used for authorised operations of a SEZ unit could not be denied merely because the services were wholly consumed within the SEZ or because exemption was theoretically available when tax was paid; the SEZ framework prevailed and refund remained maintainable where the tax incidence had been borne by the claimant. The limitation objection was rejected on the facts and the claims were treated as timely. However, discrepancies concerning invoices, service approval, registration details, rent and electricity allocation, and supporting bills were held to require factual verification by the adjudicating authority, so those issues were remitted for reconsideration.

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Issues: (i) Whether refund of service tax paid on input services used by a unit in a Special Economic Zone could be denied on the ground that the services were wholly consumed within the SEZ and that the service provider could have claimed exemption. (ii) Whether the refund claims were barred by limitation and whether the remaining documentary discrepancies required factual verification by the adjudicating authority.

Issue (i): Whether refund of service tax paid on input services used by a unit in a Special Economic Zone could be denied on the ground that the services were wholly consumed within the SEZ and that the service provider could have claimed exemption.

Analysis: The refund claims related to service tax actually discharged by the service provider on services received and used for authorised operations in the SEZ. The controlling principle applied was that services provided to a SEZ unit are treated as deemed export, and the SEZ regime prevails over inconsistent provisions. Even where exemption under the notification could have applied, refund cannot be refused merely because tax was first paid and the incidence was borne by the claimant. The earlier tribunal ruling relied upon held that such refund is maintainable under the refund provisions when the tax incidence has been borne and the services were used for authorised SEZ operations.

Conclusion: The refund could not be rejected merely because the services were wholly consumed within the SEZ or because the service provider could have availed exemption. The issue is decided in favour of the assessee.

Issue (ii): Whether the refund claims were barred by limitation and whether the remaining documentary discrepancies required factual verification by the adjudicating authority.

Analysis: The tribunal held that the claims were filed within the relevant refund period and, in any event, the time-limit objection did not survive in view of the governing refund principles applied to SEZ-related services. As regards the other objections relating to invoices, approval of services, registration particulars, allocation of rent and electricity, and non-production of supporting bills, those matters were factual in nature and needed examination on the basis of evidence before the adjudicating authority.

Conclusion: The limitation objection was rejected, while the remaining factual discrepancies were remitted for verification. This issue is partly in favour of the assessee.

Final Conclusion: The assessee was held entitled to refund on the main legal objections, but the matter was sent back for reconsideration of unresolved factual discrepancies, resulting in a partial allowance by remand.

Ratio Decidendi: Where service tax has been paid on services used for authorised operations of a SEZ unit and the tax incidence has been borne, refund cannot be denied merely because the services were wholly consumed within the SEZ or because exemption was theoretically available at the stage of payment; SEZ provisions prevail and factual deficiencies may still be verified on remand.

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