SEZ units entitled to service tax exemptions, procedural delays not a barrier.

The Tribunal allowed the appeals, emphasizing the overriding effect of the SEZ Act and the procedural nature of obtaining UAC approvals. The decision reinforced that SEZ units are entitled to service tax exemptions for authorized operations, irrespective of procedural delays in obtaining approvals. The Commissioner (Appeals)'s order denying refund claims based on the non-inclusion of ocean freight in the approved list was set aside.

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Issues Involved:
1. Exemption from service tax on services rendered to SEZ units.
2. Inclusion of ocean freight services in the approved list by the Development Commissioner.
3. Overriding effect of SEZ Act, 2005 over the Finance Act, 1994.
4. Procedural versus mandatory requirements for obtaining service tax exemptions.

Detailed Analysis:

1. Exemption from Service Tax on Services Rendered to SEZ Units:
The appellant, a SEZ unit, claimed refunds of service tax paid on input services used in SEZ operations based on Notification No. 12/2013-ST dated 01.07.2013. The Department partially rejected the claims, arguing that some services, including ocean freight, were not approved by the Development Commissioner. The Tribunal referred to Section 26 of the SEZ Act, which provides exemptions from service tax for services provided to SEZ units for authorized operations. The SEZ Act, 2005, and its rules, particularly Rule 31, were emphasized as having an overriding effect over other laws, including the Finance Act, 1994.

2. Inclusion of Ocean Freight Services in the Approved List:
The appellant contended that ocean freight services were not initially included in their approved list due to changes in service tax applicability and notifications. The Tribunal noted that ocean freight became taxable from 01.06.2016, and subsequent notifications caused delays in obtaining approval from the Development Commissioner. The Department's rejection based on the absence of ocean freight in the approved list was challenged, citing that procedural delays should not negate the entitlement to exemptions.

3. Overriding Effect of SEZ Act, 2005 Over the Finance Act, 1994:
The Tribunal highlighted Section 51 of the SEZ Act, which provides an overriding effect over any inconsistent provisions in other laws, including the Finance Act. This was supported by precedents such as the Telangana and Andhra Pradesh High Court's decision in GMR Aerospace Engineering Ltd., which affirmed that SEZ Act provisions supersede those of the Finance Act regarding service tax exemptions. The Tribunal reiterated that the conditions set out in the Finance Act's notifications were not applicable to SEZ units due to the SEZ Act's overriding nature.

4. Procedural Versus Mandatory Requirements for Obtaining Service Tax Exemptions:
The Tribunal addressed whether obtaining approval from the Unit Approval Committee (UAC) was a mandatory condition. It was concluded that such approvals were procedural rather than mandatory, as supported by previous Tribunal decisions in Mast Global Business Services India Pvt. Ltd. and ONGC Mangalore Petrochemicals Limited. The Tribunal held that the SEZ Act's intention was to provide fiscal concessions to SEZ units, and procedural delays should not hinder the entitlement to service tax exemptions.

Conclusion:
The Tribunal set aside the Commissioner (Appeals)'s order, which denied the refund claims based on the non-inclusion of ocean freight in the approved list at the time of the refund application. The Tribunal allowed the appeals, emphasizing the overriding effect of the SEZ Act and the procedural nature of obtaining UAC approvals. The decision reinforced that SEZ units are entitled to service tax exemptions for authorized operations, irrespective of procedural delays in obtaining approvals.

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