SEZ refund claims cannot fail on unstated grounds, and reversed unutilised CENVAT credit will not bar relief.

Refund claims under the SEZ exemption framework could not be rejected on grounds not stated in the show-cause notices, because doing so denied the claimant an effective opportunity to respond and violated natural justice. Prior approval of the Unit Approval Committee was treated as procedural rather than a mandatory pre-condition for refund where the services related to authorised SEZ operations and the SEZ Act had overriding effect. Reversal of CENVAT credit without utilisation was treated as equivalent to non-availment of credit, so that condition did not bar the refund. On those principles, the refund rejection was unsustainable and consequential relief followed.

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Issues: (i) whether the refund claims could be rejected on grounds not set out in the show-cause notices and in breach of natural justice; (ii) whether approval of the Unit Approval Committee under the SEZ framework was a mandatory condition for refund under the notification; and (iii) whether availing CENVAT credit, subsequently reversed without utilisation, barred the refund claims.

Issue (i): whether the refund claims could be rejected on grounds not set out in the show-cause notices and in breach of natural justice.

Analysis: The notices proceeded on the limited bases of alleged ineligibility of certain input services under Rule 2(l) of the CENVAT Credit Rules, 2004 and non-submission of documents. The rejection orders, however, rested on additional grounds, including absence of Unit Approval Committee approval and alleged non-compliance with the non-availment condition. A decision on grounds not proposed in the notices deprives the claimant of an opportunity to meet the case and is impermissible.

Conclusion: The rejection on new grounds was invalid and contrary to natural justice.

Issue (ii): whether approval of the Unit Approval Committee under the SEZ framework was a mandatory condition for refund under the notification.

Analysis: The refund was claimed for services used for authorised operations in a Special Economic Zone under Notification No. 12/2013-ST dated 01.07.2013. The SEZ Act, 2005 was treated as having overriding effect under Section 51, and the requirement of prior Unit Approval Committee approval was held to be procedural rather than a mandatory pre-condition for refund where the services were otherwise relatable to authorised operations.

Conclusion: Unit Approval Committee approval was not a mandatory bar to the refund claim.

Issue (iii): whether availing CENVAT credit, subsequently reversed without utilisation, barred the refund claims.

Analysis: The record showed that the credit had been reversed without utilisation and reflected in the returns. On that basis, the situation was treated as equivalent to not taking credit at all, and therefore the condition against availment of CENVAT credit was not breached for denying the refund.

Conclusion: Reversal of unutilised CENVAT credit did not disentitle the claimant from refund.

Final Conclusion: The refund rejection could not be sustained, and the assessee was entitled to consequential relief.

Ratio Decidendi: A refund claim under the SEZ exemption framework cannot be rejected on grounds not contained in the show-cause notice, and procedural requirements such as prior committee approval do not defeat the claim where the statute has overriding effect and any CENVAT credit taken has been reversed without utilisation.

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