2025 (12) TMI 453 - AT - Service Tax

SEZ service tax exemption upheld under Section 26 despite procedural lapses in Notification 17/2011-ST conditions

M/s Matrix Design Works Versus Commissioner of Central Excise & CGST, Noida

The CESTAT allowed the appeal filed by the service provider against service tax demand on services rendered to a SEZ unit. Relying on prior decisions, the ... Exemption from service tax - services provided by the appellant to a SEZ unit in the SEZ - non-compliance with the conditions prescribed in N/N. 17/2011-ST, as amended - demand time barred or not - HELD THAT:- The issue in the present appeal has been considered by various times and again by this Tribunal in the decisions referred by the Counsel - In the case of Shapoorji Pallonji & Company Ltd. [2025 (11) TMI 304 - CESTAT MUMBAI] it was held that 'the exemption benefits extended to taxable services provided to SEZ under Section 26 of the Special Economic Zones Act, 2005 cannot be denied on the ground that certain procedures have not been followed or certain conditions prescribed in the notification have not been fulfilled.' Accordingly, on the merits of the case itself, the impugned order cannot be upheld - As the issue can be decided on merit, therefore, no finding required on the issue of limitation. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether taxable services provided to a unit in a Special Economic Zone for authorised operations are exempt from service tax notwithstanding non-compliance with the procedural and documentary conditions prescribed in Notification No. 17/2011-ST, as amended. (2) Whether the Appellate Tribunal can entertain additional written submissions filed by the appellant after conclusion of hearing and pronouncement of the order, in view of the doctrine of functus officio. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Exemption for services provided to SEZ units despite non-compliance with Notification No. 17/2011-ST conditions Legal framework (as discussed) (a) Section 26(1)(e) of the Special Economic Zones Act, 2005 granting exemption from service tax on taxable services provided to a Developer or Unit to carry on authorised operations in a Special Economic Zone, subject to sub-section (2). (b) Section 26(2) of the Special Economic Zones Act, 2005 empowering the Central Government to prescribe, by Rules under the SEZ Act, the manner and the terms and conditions subject to which such exemptions are to be granted. (c) Section 51 of the Special Economic Zones Act, 2005 providing that the provisions of the SEZ Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. (d) Notification No. 17/2011-ST dated 01.03.2011 (as amended) issued under Section 93 of the Finance Act, 1994, prescribing an exemption mechanism and procedural conditions (Forms A-1, A-2, A-3 etc.) for services received by SEZ units/developers, including a refund route and conditions for availing upfront exemption. (e) The impugned order's reliance on general principles of burden of proof for exemption claims, with reference to decisions emphasising strict compliance with exemption conditions. (f) Judicial precedents discussed and relied upon by the Tribunal, including: - Decisions holding that Section 26 read with Section 51 of the SEZ Act, 2005 overrides inconsistent conditions imposed under the Finance Act, 1994 and notifications issued thereunder, and that procedural lapses (non-filing of prescribed forms, non-fulfilment of notification conditions) cannot defeat substantive SEZ exemption where services are for authorised operations of SEZ units/developers. - Judgments affirming that, due to Section 51, the charging provisions for service tax under the Finance Act, 1994 cannot operate to levy service tax on services covered by Section 26 SEZ exemption, and that exemption notifications under the Finance Act become redundant or merely duplicative in such context. Interpretation and reasoning (a) The Commissioner (Appeals) had treated the exemption as conditional strictly upon compliance with Notification No. 17/2011-ST procedures and documentation, holding that in absence of Forms A-1/A-2, reconciliation and supporting evidence, exemption could not be granted, and placing the full burden on the assessee to strictly prove eligibility. (b) The Tribunal examined its own prior decisions and higher judicial authority on the interaction between the SEZ Act and the Finance Act, 1994, highlighting that: - The SEZ Act is a special, later, and self-contained legislation for SEZs, with Section 51 conferring overriding effect over inconsistent provisions of other laws. - Section 26(1)(e) directly grants exemption from service tax on taxable services provided to SEZ Developers/Units for authorised operations, and the 'terms and conditions' referred to in Section 26(2) must be prescribed only by Rules made under the SEZ Act (as per the definition of 'prescribed' in Section 2(w) of the SEZ Act), not by notifications under the Finance Act, 1994. - Once the manner and conditions for SEZ exemptions are prescribed in Rules framed under the SEZ Act (such as the SEZ Rules), the field is fully occupied, and conditions in notifications issued under the Finance Act cannot curtail or override the substantive exemption under Section 26. - Notifications under Section 93 of the Finance Act, 1994 are of general application to taxable services, whereas Section 26 of the SEZ Act is a special provision specifically for SEZ Developers/Units; by virtue of Section 51, the special SEZ provisions prevail. (c) The Tribunal followed judicial findings that: - Exemptions under Section 26 SEZ Act are not dependent on additional or inconsistent conditions in service tax notifications (e.g., filing Forms A-1/A-2) when such conditions are not mandated by the SEZ Act/SEZ Rules. - Denial of SEZ exemption cannot be based merely on non-compliance with procedural requirements in Finance Act notifications where the substantive conditions of Section 26 and SEZ Rules are satisfied, and where the services are to SEZ units/developers for authorised operations. - In view of Section 51, the charging provisions for service tax under the Finance Act, 1994 stand overridden, to the extent of services covered by Section 26 SEZ exemption, and hence the existence or non-fulfilment of conditions in Finance Act exemption notifications is legally inconsequential for such SEZ supplies. (d) Applying the above principles, the Tribunal held that the lower authorities erred in treating non-compliance with the procedures and documentary conditions of Notification No. 17/2011-ST as fatal to the claim of exemption for services provided to an SEZ unit. (e) The Tribunal, consistent with its prior decisions (including one of the same Bench) and in line with binding higher court precedents, concluded that the demand of service tax, interest and penalties on the services provided to the SEZ unit could not be sustained on merits solely for alleged non-fulfilment of notification procedures. Conclusions (a) Services provided by the appellant to the SEZ unit for authorised operations are covered by the exemption under Section 26 of the SEZ Act, 2005, which has overriding effect by virtue of Section 51 of the SEZ Act. (b) Procedural lapses or non-compliance with conditions in Notification No. 17/2011-ST (including absence of prescribed forms and documentary evidences as required by that notification) cannot, by themselves, be a valid ground to deny the SEZ exemption when the services are to an SEZ unit for authorised operations. (c) The confirmation of service tax demand, interest and penalties by the lower authorities, based on non-compliance with Notification No. 17/2011-ST and alleged failure to prove exemption, is unsustainable on merits and stands set aside. (d) Having allowed the appeal on merits, the Tribunal expressly declined to record any finding on limitation or the validity of invoking the extended period. Issue (2): Competence of the Tribunal to consider additional submissions after pronouncement - functus officio Legal framework (as applied) The Tribunal proceeded on the general principle of functus officio - that upon pronouncement of its order after hearing is concluded, the adjudicating body becomes functus officio and cannot entertain further submissions or reopen the decided matter. Interpretation and reasoning (a) After conclusion of the hearing and pronouncement of the order in open court on 01.12.2025, the appellant/appellant's counsel attempted to file additional written submissions via e-mail dated 03.12.2025. (b) The Tribunal held that once the order had been pronounced on conclusion of hearing, it became functus officio and no longer had authority to consider or take on record any further submissions in relation to the decided appeal. Conclusions (a) Additional written submissions filed by the appellant after conclusion of hearing and pronouncement of order cannot be taken on record by the Tribunal. (b) Such post-pronouncement submissions were summarily dismissed as not maintainable in view of the Tribunal being functus officio.