SEZ refund limitation through ISD invoices must be applied liberally, preserving substantive exemption for authorised operations.

In SEZ refund claims for service tax on input services used for authorised operations, the one-year limitation in paragraph 3(III)(e) of Notification No. 12/2013-ST is not to be applied mechanically to Table-II claims routed through an Input Service Distributor. The relevant document is the ISD invoice, and the refund claim becomes actionable when the SEZ unit receives the distributed credit particulars, so limitation cannot be computed as in a direct payment claim. In the beneficial SEZ exemption regime, any minor delay is procedural and should be construed liberally where substantive eligibility is otherwise established, allowing condonation to preserve the exemption's object.

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Issues: (i) whether the refund claim of service tax paid on input services used for authorised operations in the SEZ was barred by limitation under paragraph 3(III)(e) of Notification No. 12/2013-ST dated 01.07.2013, particularly in relation to Table-II claims routed through the Input Service Distributor; and (ii) whether delay, if any, in filing the refund claims could be condoned in the light of the SEZ scheme and the beneficial nature of the exemption.

Issue (i): whether the refund claim of service tax paid on input services used for authorised operations in the SEZ was barred by limitation under paragraph 3(III)(e) of Notification No. 12/2013-ST dated 01.07.2013, particularly in relation to Table-II claims routed through the Input Service Distributor.

Analysis: The refund mechanism under the notification has to be read with the SEZ Act, 2005, which grants a substantive exemption for authorised operations and gives overriding effect to the special statute. The condition in paragraph 3(III)(e) requiring filing within one year from payment by the SEZ unit to the registered service provider is applicable to direct refund claims and cannot be mechanically applied to Table-II claims where the refund is claimed only after distribution of credit through ISD invoices. For such claims, the ISD invoice is the relevant document and the refund claim becomes actionable only when the SEZ unit receives the distributed credit particulars. The period of limitation therefore could not be computed in the manner adopted by the authorities below.

Conclusion: The limitation objection was not sustainable against the refund claims.

Issue (ii): whether delay, if any, in filing the refund claims could be condoned in the light of the SEZ scheme and the beneficial nature of the exemption.

Analysis: The SEZ scheme is intended to keep SEZ units free from tax burden in respect of authorised operations. Once eligibility to refund is otherwise established and substantive conditions are met, the time-limit condition is only procedural and must receive a liberal construction. A minor or marginal delay cannot defeat the object of the exemption, particularly when the legislative framework under the SEZ Act, 2005 is beneficial and designed to promote exports. On that approach, the authorities ought to have exercised the discretion to condone the delay.

Conclusion: The delay, if any, ought to have been condoned in favour of the assessee.

Final Conclusion: The refund claims were allowed and the rejection order was set aside, giving full effect to the SEZ exemption scheme for the assessee's authorised operations.

Ratio Decidendi: For SEZ refund claims relating to services distributed through ISD and claimed in Table-II of Form A-4, the one-year condition in Notification No. 12/2013-ST is not to be applied mechanically as if it were a direct payment claim; in a beneficial SEZ exemption regime, procedural delay cannot defeat substantive entitlement where the claimant is otherwise eligible.

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