SEZ service tax refund cannot be denied for procedural lapses, and delayed refund interest accrues after the statutory period.

Service tax refund for services used in authorised operations in a Special Economic Zone could not be denied merely because the assessee had not obtained prior approval of the specified service list or filed Form A-1, where the Department did not dispute actual receipt of the services for authorised SEZ operations. The substantive exemption under the Special Economic Zone Act prevailed over procedural conditions in the notification, and the refund was therefore admissible. Interest on the delayed refund was also payable under the statutory refund interest provision once three months had expired from receipt of the refund application, and it was not postponed until the refund or appellate order was issued.

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Issues: (i) whether refund of service tax paid on services used for authorised operations in a Special Economic Zone could be denied for non-fulfilment of procedural requirements under Notification No. 17/2011-ST, including prior approval of the list of specified services and filing of Form A-1; (ii) whether interest was payable on the delayed refund.

Issue (i): whether refund of service tax paid on services used for authorised operations in a Special Economic Zone could be denied for non-fulfilment of procedural requirements under Notification No. 17/2011-ST, including prior approval of the list of specified services and filing of Form A-1.

Analysis: Section 26 of the Special Economic Zone Act, 2005 grants exemption in respect of taxable services provided to a Developer or Unit for authorised operations in a Special Economic Zone. Section 51 gives the Act overriding force over inconsistent provisions of other laws. On that basis, the substantive exemption attached to services used for authorised operations cannot be defeated by procedural requirements in the exemption notification. Where the Department does not dispute that the services were received in the SEZ for authorised operations, delay in approval of the service list or non-filing of the prescribed declaration cannot justify denial of refund on technical grounds.

Conclusion: The refund could not be denied on the stated procedural grounds and the issue is decided in favour of the assessee.

Issue (ii): whether interest was payable on the delayed refund.

Analysis: Section 11BB of the Central Excise Act, 1944 provides for interest when a refund is not granted within three months from the date of receipt of the refund application. The liability to pay interest arises after the statutory period expires and is not postponed until the date of the refund order or appellate order. Accordingly, once refund became admissible and remained unpaid beyond the statutory period, interest followed as a consequence of delay.

Conclusion: Interest on the delayed refund is payable in favour of the assessee.

Final Conclusion: The denial of refund on procedural grounds was unsustainable, and the assessee was held entitled to refund with consequential interest for delayed payment.

Ratio Decidendi: When services are undisputedly used for authorised operations in a Special Economic Zone, the substantive exemption under the Special Economic Zone Act prevails over procedural conditions in a notification, and interest on refundable duty or tax becomes payable after expiry of the statutory three-month period from receipt of the refund claim.

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