SEZ input service refund extends to pre-production services used for setting up an approved unit.

Refund of service tax on input services used for setting up an approved Special Economic Zone unit was held admissible even though the services were received before commercial production began. The refund notifications were treated as a facilitative mechanism to operationalise the statutory SEZ benefit, and they could not be read to curtail the exemption or refund entitlement arising from the SEZ framework. On that basis, the service tax refund was allowed and the demand, along with interest, was unsustainable.

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Issues: Whether the assessee was entitled to refund of service tax paid on input services used for setting up a Special Economic Zone unit even though the services were availed before commencement of commercial production.

Analysis: The unit had been approved as a Special Economic Zone unit and the services were received for the purpose of the SEZ project. The refund notifications operate as a facilitative mechanism to operationalise the statutory immunity available to SEZ units, and that benefit is not denied merely because the services were received before commercial production commenced. The cited precedent recognised that the notifications cannot be read so as to curtail the exemption or refund entitlement flowing from the governing SEZ framework.

Conclusion: The assessee was entitled to refund of service tax, and the demand and interest confirmation was unsustainable.

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