Service-tax refund eligibility for services supplied to SEZs; only payments from 03.03.2009 and timely six-month claims allowed

Whether services qualify for refund under Notification No.09/2009-ST (effective 03.03.2009): Held that only service-tax paid on or after 03.03.2009 is refundable; invoices with payment before that date are ineligible - claim denied for those invoices. Whether refunds meet the six-month filing requirement under para 2(f): Held that claims not filed within six months of payment are time-barred - such refund claims rejected. Whether services were approved and used for authorized SEZ operations: Held that Approval Committee approval and actual use for authorized operations must be shown; once approved and used, they cannot be treated as unrelated - refund allowed for qualifying invoices subject to verification. Onus to prove eligibility rests on claimant; outcome: appeals allowed in part and impugned orders modified accordingly.

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Issues: Whether the partial rejection of SEZ unit's refund claims of service tax paid (period Oct 2009 to Dec 2010) under Notification No. 09/2009-ST dated 03.03.2009 is justified, including rejection on grounds that (i) payments pre-dated the notification, (ii) services (tour operator, outdoor catering, rent-a-cab, commercial training) were not used for authorised operations, (iii) incorrect classification of invoices, and (iv) claims filed beyond six months without condonation.

Analysis: The Notification grants refund for specified services used in relation to authorised operations in an SEZ subject to conditions including Approval Committee list, actual use for authorised operations, no CENVAT credit, payment of service tax and time-limit for filing claims (six months with discretion to extend). The SEZ Act, 2005 (notably Section 26 and the overriding provision in Section 51) gives substantive exemption for services used for authorised operations and has an overriding effect over inconsistent provisions of the Finance Act, 1994 and related notifications. Where services are approved by the Approval Committee and used in relation to authorised operations, procedural conditions in the notification (including classification and time-bar) cannot be applied so as to deny the substantive exemption; however the refund sanctioning authority must verify Approval Committee approval, payment of service tax, absence of CENVAT credit and actual use for authorised operations. Invoices for payments made before 03.03.2009 are not eligible under Notification No. 09/2009-ST which is effective from that date. Invoices unrelated to authorised operations such as interest, expenditure for sports events and other non-authorised uses are properly rejectable. Where claims are time-barred, the notification expressly permits the authority to condone delay and such discretion must be exercised on the reasons provided; procedural non-application of mind or non-speaking rejections are unsustainable. Applicable authorities and prior Tribunal decisions support that once Approval Committee approval and use for authorised operations are established, refunds should not be denied on the basis of classification or facilitative/employee-related character alone.

Conclusion: The partial rejections are not sustainable to the extent they deny refund for services that were approved by the Approval Committee and demonstrably used in relation to authorised operations; however amounts relating to payments prior to 03.03.2009 and amounts for invoices unrelated to authorised operations or not falling within the refund scheme are correctly excluded. The appeals are allowed subject to verification of Approval Committee approval, payment of service tax, non-availability of CENVAT credit and actual use for authorised operations; amounts rightly excluded are sustained.

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