SEZ service tax refund: prior CENVAT credit reversal satisfied the notification condition and preserved refund eligibility.

Refund of service tax for specified services used in authorised SEZ operations could not be denied merely because CENVAT credit had been taken earlier, where the credit was reversed before the refund claim. Notification No. 17/2011-ST required that no such credit be taken, and the applied principle was that reversal treats the credit as not having been taken, satisfying the condition through substantive compliance. Following the cited Supreme Court-approved approach, the tribunal held that prior availment did not defeat the refund once the credit stood reversed. The refund rejection was set aside.

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Issues: Whether refund of service tax paid on specified services used for authorized operations in a SEZ unit could be denied on the ground that CENVAT credit had been taken earlier, when the credit was reversed before filing the refund claim.

Analysis: The refund claim was governed by Notification No. 17/2011-ST, which contained a condition that no CENVAT credit of service tax paid on specified services for authorized operations could be taken. The decisive question was whether later reversal of the credit amounted to fulfilment of that condition. The reasoning followed the principle accepted in earlier decisions that reversal of credit has the effect of treating the credit as not taken, and that substantive compliance with the exemption condition is sufficient. The same approach had been approved by the Supreme Court in the cited precedent and was applied here to the SEZ refund context.

Conclusion: The reversal of CENVAT credit before the refund claim satisfied the condition in the notification, and the refund could not be rejected on the ground of prior availment of credit. The rejection of refund was set aside and the appeal was allowed.

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