SEZ unit wins refund appeal for specified input services under amended notification 15/2009

CESTAT Bangalore allowed an appeal regarding refund of specified input services used in SEZ unit operations. The revenue authority had rejected the refund claim based on amended notification 15/2009 dated 20.05.2009, arguing it excluded services consumed wholly within the SEZ. However, the Tribunal found that in the appellant's own previous case, it had already held the appellant eligible for such refunds after considering amended notification provisions. Since the issue was no longer res integra, the impugned orders were set aside and the appeal was allowed.

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The core legal issue considered in this judgment is the eligibility of refund claims for service tax paid on specified input services used in relation to authorized operations within Special Economic Zones (SEZs). Specifically, the question is whether the appellant, a SEZ unit, is entitled to a refund of service tax paid on such services, despite an amendment in Notification No. 15/2009 which appeared to restrict refunds for services consumed wholly within the SEZ.

The Tribunal analyzed this issue primarily in the context of the interplay between the Special Economic Zones Act, 2005 ("SEZ Act") and the Finance Act, 1994 (service tax law), along with relevant notifications and circulars issued by the Government of India. The key legal question was whether the amendment to Notification No. 9/2009 by Notification No. 15/2009, which introduced a proviso excluding refunds for services consumed wholly within the SEZ, precludes the appellant's refund claim or whether the broader exemption under the SEZ Act overrides this procedural limitation.

In addressing this issue, the Tribunal relied heavily on statutory provisions, government notifications, circulars, and binding precedents, including prior decisions of the Tribunal itself and other appellate authorities.

Relevant Legal Framework and Precedents:

The Tribunal examined the following statutory and regulatory provisions:

• Section 26(1)(e) of the SEZ Act, 2005: Grants exemption from service tax on taxable services provided to a developer or unit to carry on authorized operations in a SEZ.
• Section 51 of the SEZ Act, 2005: Provides that the SEZ Act shall have overriding effect over any other law inconsistent with it.
• Notification No. 9/2009-Service Tax: Exempts taxable services provided to SEZ developers or units, subject to conditions including refund of service tax paid on specified services.
• Notification No. 15/2009-Service Tax: Amends Notification No. 9/2009 to exclude refund claims for services consumed wholly within the SEZ, providing unconditional exemption in such cases without the need to pay tax and claim refund.
• Circular No. 114/8/2009-ST: Clarifies that Notification No. 15/2009 provides unconditional exemption for services consumed within the SEZ, dispensing with the refund route, which applies only when services are consumed partially or wholly outside the SEZ.

The Tribunal also referred to several precedents that have interpreted these provisions, including:

• Infosys Ltd. v. CST (2017) - CESTAT Bangalore
• Intas Pharma Ltd. v. CST (2013) - CESTAT Ahmedabad
• Zydus BSV Pharma Pvt. Ltd. v. CST (2018) - CESTAT Ahmedabad
• Tata Consultancy Services Ltd. v. CCE (2013) - CESTAT Mumbai
• Sears IT & Management Services (I) Pvt. Ltd. v. CCE (2018) - CESTAT Mumbai
• Reliance Industries Ltd. v. CCE (2016) - CESTAT Mumbai
• Reliance Ports & Terminals Ltd. v. CST

Court's Interpretation and Reasoning:

The Tribunal observed that the SEZ Act confers an absolute exemption from service tax on services provided to SEZ units for authorized operations. This exemption has overriding effect over other laws, including the Finance Act. Notification No. 9/2009 was issued to operationalize this exemption by allowing refund of service tax paid on specified services. Subsequently, Notification No. 15/2009 amended the refund mechanism by providing that services consumed wholly within the SEZ are exempted upfront, without the need to pay service tax and claim refund, while refund remains available only for services consumed partially or wholly outside the SEZ.

However, the Tribunal emphasized that this procedural amendment does not deny the substantive exemption guaranteed under the SEZ Act. Where service tax has been paid inadvertently or otherwise on services consumed wholly within the SEZ, the appellant remains entitled to claim refund under Section 11B of the Central Excise Act read with Section 83 of the Finance Act. The Tribunal held that the notifications merely provide a facilitative mechanism for operationalizing the exemption, and cannot override or dilute the statutory exemption itself.

The Tribunal also highlighted the policy objective underlying the SEZ Act and related provisions, which is to ensure that exports do not bear the burden of taxes. It noted that services provided to SEZ units are deemed exports, and thus exempt from service tax. This policy intent must be given primacy over procedural technicalities or restrictive interpretations.

Key Evidence and Findings:

The appellant had filed refund claims for service tax paid on specified input services used in their SEZ units. The Commissioner (Appeals) rejected these claims relying on the amended Notification No. 15/2009. However, the Tribunal found that the appellant's own prior case (Infosys Ltd. v. CST, 2017) had already established entitlement to the refund. The Tribunal also found that the appellant had complied with the conditions for claiming refund, including use of services in relation to authorized operations and timely filing of claims.

Application of Law to Facts:

The Tribunal applied the overriding provisions of the SEZ Act to hold that the appellant's refund claims could not be denied merely on the basis of the amended notification's procedural provisions. It held that the appellant was entitled to refund under Section 11B of the Central Excise Act, as the service tax was paid and the services related to authorized operations. The Tribunal also rejected the department's argument that services consumed wholly within the SEZ are excluded from refund, clarifying that such exclusion applies only to the refund mechanism and not to the underlying exemption or refund entitlement where tax was paid.

Treatment of Competing Arguments:

The department argued that the amendment in Notification No. 15/2009 precluded refund claims for services consumed wholly within the SEZ, and that the Commissioner (Appeals) had rightly rejected the refund claims. The Tribunal rejected this argument, relying on the statutory provisions and prior judicial pronouncements. It held that the notifications cannot override the SEZ Act's exemption and that procedural amendments cannot be used to deny substantive rights. The Tribunal also emphasized that the appellant had borne the incidence of service tax and filed refund claims within the prescribed time, satisfying all legal requirements.

Conclusions:

The Tribunal concluded that the appellant is entitled to refund of service tax paid on specified input services used in relation to authorized operations in the SEZ units. The impugned orders rejecting the refund claims were set aside. The Tribunal underscored that the provisions of the SEZ Act have overriding effect and that the notifications merely provide procedural mechanisms to operationalize the exemption without curtailing substantive rights.

Significant Holdings:

"The appellant is entitled to the subject refund claims as per relevant provisions of the applicable laws/Notifications. The case laws also support the principle that units operating in Special Economic Zones (SEZs) are not to be charged any duties of Central Excise/Customs or other taxes and wherever any such taxes/duties have been paid, they would be entitled to the refund of the same."

"Notification No. 9/2009 and Notification No. 15/2009 merely contour the process by which the benefit of exemption/immunity to tax is operationalised. These notifications are calibrated to enable recipients of taxable services (exempt from liability to tax under the provisions of the SEZ Act), to claim refund of the service tax, wherever assessed and collected by Revenue or remitted otherwise by the taxable service provider, inadvertently."

"Section 26(1)(e) of the SEZ Act, read with Section 51 of the SEZ Act, confers primacy to the exemption from service tax on services provided to SEZ units, which cannot be denied or diluted by any other law or notification."

"Disregard of parliamentary intent to levy a tax or exempt a tax cannot be brooked under any circumstance."

"The appellant has borne the incidence of taxation and has filed the refund claim within the time period provided for in Section 11B. The rejection of service tax refund is not sustainable in law."

"The impugned orders are set aside and the appeals are allowed with consequential relief to the appellant."

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