2022 (4) TMI 989 - AT - Service Tax

SEZ Tribunal Grants Relief, Upholds SEZ Act Primacy

M/s. SRF Limited Versus Commissioner of Customs, Central Excise & Service Tax, LTU New Delhi and Commissioner of CGST, and Central Excise, Indore

The Tribunal allowed all five appeals, set aside the impugned orders, and granted consequential relief to the appellant. The decisions emphasized the ... Refund of service tax paid - input services provided for authorised operations of its unit in the SEZ, Indore - claims were partly rejected for not meeting the requirements under the exemption notifications - benefit of N/N. ST-40/2012 dated 20.6.2013 and ST-12/2013 dated 1.7.2013 - meaning of 'authorised operation' and 'prescribed' - HELD THAT:- 'Authorised operations' under the SEZ Act are those operations of a developer authorised by the Board under sub-section (2) of Section 4 or those operations of a unit authorised by the Development Commissioner under sub-section (6) of section 9. As per section 2(e), 'Board' means the Board of Approval constituted under sub-section (1) of section 8 - If a developer has to enjoy the exemptions available under section 26 of the SEZ Act, its operations should be authorised by the Board under section 4 and it should meet the manner, terms and conditions laid down under the SEZ Rules. Similarly, if a unit located in the SEZ has to enjoy the exemptions available under Section 26, its operations must be authorised by the Development Commissioner under Section 9 and it should meet the manner, terms and conditions prescribed under the SEZ Rules. In these appeals there is no dispute that the operations of the appellant were authorised by the Development Commissioner under the SEZ Act nor is any allegation that any of the conditions laid down in Rules 22 and 31 were violated. While the SEZ Act itself provides for exemption from service tax (as well as Central Excise duty and Customs duty), exemption notifications were also issued by the Government under the respective laws. These exemption notifications were also issued with some conditions. Thus, there is duplication inasmuch as the goods and services provided to authorised operations of developers and units in the SEZs are exempted from Customs duty, Central Excise duty and the service tax by the SEZ Act itself (subject to the manner which may be prescribed) and there are also exemption notifications under the respective tax laws which are also subject to some conditions. The exemption notifications in dispute in this case are service tax exemption notifications ST-40/2012 dated 20.6.2013 and ST-12/2013 dated 1.7.2013. This authority of law to levy and collect taxes is in the form of charging sections of the Acts- such as Section 3 of the Central Excise Act, 1944, Section 12 of the Customs Act, 1962 and Sections 66, 66Aand Section 66B of Chapter V of the Finance Act, 1994 (for collection of Service Tax). While section 66 provides for levy of service tax on forward charge basis by the service provider, section 66A provides for charge of service on reverse charge basis by the service recipient in certain cases. Section 66B provides for levy of service tax on all services other than those in the negative list after 2012. The levy and collection of these taxes and duties are further modified by some machinery provisions of these Acts, including those which enable the Government to issue exemption notifications - Central Excise duty leviable under section 3 at the rates specified in the Central Excise Tariff gets reduced to the extent any exemption notification is issued under section 5A of the Central Excise Act - Section 26(1) of the SEZ Act is inconsistent with the three charging sections viz., Section 3 of the Central Excise Act, 1944, Section 12 of the Customs Act, 1962 and Sections 66, 66A and 66B of Chapter V of the Finance Act, 1994. In addition to the general principle of a specific law (pertaining to SEZ) prevailing over the general law (levying customs, central excise or service tax) and the later enactment (such SEZ Act, 2005) prevailing over the earlier enactments (Central Excise Act, 1944, Customs Act, 1962 and Finance Act, 1994), in the SEZ Act, the Parliament has explicitly resolved this inconsistency between the laws. Section 51 of the SEZ Act states that the provisions of SEZ Act override any other provisions of other laws. The charge of excise duty under Section 3 of the Central Excise Act, the charge of Customs Duty under section 12 of the Customs Act and the charge of service tax under sections 66, 66A and 66B of the Finance Act, 1994 will not apply to goods and services supplied to developers and units for authorized operations in the SEZ areas by virtue of the overriding provisions of the SEZ Act. Any exemption notifications and conditions therein are therefore, redundant because, the Parliament itself has, through section 51 of the SEZ Act, overridden the charge in the other laws. Usually when a service is rendered to a manufacturer or to a service provider, an invoice is raised in its name. Some services, however, are provided at the head office of the assessee. The head office usually is a corporate or registered office which neither manufactures any goods nor provides any services by itself. Only its field units do so. The Service Tax law considers the services provided in the head office as input services to the field units and permits the head office to distribute proportionately, the service rendered at the head office to the field formations. For this purpose, the head office needs to register as an ISD and thereafter it can distribute the service rendered at the head office to the field formations. This enables the field offices which indirectly profit from these services to take CENVAT credit on the strength of the ISD invoices. In this case, the head office is located in Gurugram and it is not an SEZ unit. A portion of the services received in Gurugram are for the authorised operations of the appellant in its SEZ unit in Indore and to that extent, the ISD invoice issued by the head office distributes the service to the appellant. Since it is a service rendered for the authorised operations of the appellant to the extent indicated in the ISD invoice, to that extent, service tax cannot be charged in view of section 26 of the SEZ Act. The service tax paid to that extent needs to be refunded to the appellant. The head office could not have claimed the refund for two reasons. Firstly, it is not an SEZ unit nor does it have any authorised operations. Secondly, the head office would have paid service tax on the total input service invoice and only a portion of which it is distributed to the appellant through an ISD invoice. The appellant is, therefore, entitled to the refund. Levy of service tax - service tax denied on the ground that the goods were transported from the SEZ unit, i.e., beyond the factory gate after the goods have been removed - HELD THAT:- As per the CENVAT Credit Rules, credit of input services on transportation of goods from the place of removal was allowed for some time and thereafter, it was restricted to transportation of goods up to the place of removal. Thus, no CENVAT credit of service tax paid on outward transportation of goods was allowed. However, as far as SEZ units are concerned, so long as the service is for authorised operation of the SEZ unit, there is no scope for making any distinction based on the place of removal under section 26 of the SEZ Act. Refund can be denied or service tax can be charged only if the service is not for authorised operations of the SEZ unit. There is no such allegation in the present case. The denial of refund of service tax to the appellant in these five appeals is not sustainable - Appeal allowed - decided in favor of appellant. Issues Involved:Rejection of refund claims for service tax paid by the appellant at Pitampur SEZ Zone, Madhya Pradesh.Issue-wise Detailed Analysis:1. Appeal No. ST/52449/2016:- Commercial Training Service (Rs. 3,708): Refund rejected as the service was not approved by the Unit Approval Committee (UAC). The appellant argued that the training was for SEZ unit employees, evidenced by Invoice No. 203 dated 19.7.2013, and non-approval should not negate the substantive right to claim a refund.- Storage and Warehousing Service (Rs. 1,96,996): Refund denied on the basis that the material could have been transported directly to the unit. The appellant contended that warehousing charges were directly related to SEZ operations as the goods were raw materials for the SEZ unit.- Services Distributed Through ISD Mechanism (Rs. 20,79,874): Refund rejected as it was claimed that the head office should have claimed the refund. The appellant argued that the head office cannot claim a refund under CENVAT Credit Rules, and relied on Tribunal’s Final Order No. 51230/2019.2. Appeal No. ST/52466/2016 (Jan 2013 - Mar 2013):- Proportionate Service Tax Distributed by ISD Mechanism (Rs. 29,61,415): Refund denied as the head office initially took credit, and the approval committee deferred approval of ISD invoices. The appellant argued that ISD mechanism is for proportionate distribution of input service tax and relied on Tribunal’s order dated 29.7.2019.- Legal Service, Cleaning Service, and Transport of Goods Through Pipeline Service (Rs. 13,92,232): Refund denied as services were approved later by UAC. The appellant argued that subsequent approval is not fatal to the claim as SEZ Act has an overriding effect.3. Appeal No. 52488/2016 (April 2013 - June 2013):- Input Services Distributed Through ISD Mechanism (Rs. 5,25,232): Refund denied on similar grounds as in previous appeals. The appellant reiterated that ISD mechanism is for proportionate distribution of input tax.- Legal Service, Cleaning Service, and Transport of Goods Through Pipeline Service (Rs. 3,45,449): Refund denied due to subsequent approval. The appellant argued that SEZ Act overrides and Tribunal’s order dated 29.7.2019 supports their claim.4. Appeal No. 52490/2016 (July 2013 - Sept. 2013):- Transport of Goods by Road Services (GTA) for Exports and DTA Clearances (Rs. 1,13,84,384): Refund denied as CENVAT credit is admissible only for inward transportation, and part of the service tax was paid as per an order not related to SEZ operations. The appellant argued that GTA service was approved and tax paid later should be refunded.- Business Auxiliary Service (Rs. 4,178): Refund denied as the address on the invoice was not of the SEZ unit. The appellant demonstrated correlation with SEZ unit through shipping documents.5. Appeal No. 51804/2021 (Jan 2016 - Mar 2016):- Refund Claim on ISD Invoices (Rs. 1,94,431): Refund denied as services were not in the approved list. The appellant argued that 6 out of 8 services were approved, and for the other two, SEZ Act supersedes other laws.- Claim Not Filed in Same Quarter (Rs. 94,699): Refund denied due to delay. The appellant argued that the claim was filed based on the date of tax payment, not the invoice date, and requested condonation of delay.Legal Analysis and Findings:- SEZ Act and Rules: SEZ Act provides for exemptions from service tax for services used in authorized operations in SEZs. Section 26 and Section 51 of the SEZ Act have overriding provisions over other laws, including the Finance Act, 1994.- Tribunal’s Observations: The Tribunal emphasized that the SEZ Act overrides other laws, and the exemption notifications under the Finance Act are redundant. The appellant’s operations were authorized by the Development Commissioner, and there was no violation of SEZ Rules.- ISD Mechanism: The Tribunal acknowledged that ISD mechanism allows proportionate distribution of service tax credits to SEZ units, and the head office cannot claim refunds.- Procedural Aspects: The Tribunal dismissed procedural grounds for rejection, such as non-approval by UAC and filing delays, as SEZ Act has overriding provisions.Conclusion:The Tribunal allowed all five appeals, set aside the impugned orders, and granted consequential relief to the appellant, emphasizing the overriding effect of the SEZ Act over other laws and exemption notifications.