TaxTMI 
TaxTMI 
2020 (12) TMI 1069
X X X X Extracts X X X X
X X X X Extracts X X X X
....l to operate as a SEZ unit by the office of the Development Commissioner, Noida Special Economic Zone by a letter dated June 19, 2008, subject to the provisions of The Special Economic Zones Act, 2005 SEZ Act and The Special Economic Zone Rules, 2006 SEZ Rules made thereunder for undertaking the authorized operations "BPO (ITES)" i.e. Business Process Outsourcing (Information Technology and Enabled Services). 3. The appellant claims that during the period March, 2009 to June, 2010 it was engaged in 100 percent export of services from its SEZ unit and that it did not have any operations in the Domestic Tariff Area. It further claims that it was involved in the provision of Business Process Outsourcing BPO services and other support services to customers located outside India and that the aforesaid services were "authorized operations" in terms of the letter dated June 19, 2008. . 4. In order to advance benefit to establishments operating from SEZ, the Central Government granted service tax exemption on the taxable services provided to a Developer or a Unit to carry on the authorized operations in a SEZ. It needs to be noted that till March 2, 2009 the SEZ units were not required t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance Sheets. 3. The Unit Approval Committee has not approved input services namely Mandap Keeper services, Club of Association Services, Life Insurance Services, Cable Services, Courier Services, Air Travel Agent Services, Agent Services, and Out Door Catering Services used outside the Zone as used in authorized operations. Despite that you have claimed refund of services tax paid against these services. It may be clarified that as to why refund claims against these services should not be rejected. 4. As to why all claims in r/o outdoor catering service be treated as used outside the zone and therefore be rejected in absence of birfurcation of Outdoor Catering Services used outside and inside the zone. 5. As to why refund claim of service tax paid on services consumed wholly inside the SEZ after the amendment by Notification No. 15/2009-ST dated 20.05.2009 be rejected. 6. The refund claims should have been accompanied by the documents for having paid the service tax. In this regard, you have submitted only 'Input Service Invoice Register' (in a computerized statement format without copies any input invoices) and copy of bank statement. A sample check of these two documents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he claim for refund could not have been rejected. The Commissioner (Appeals), therefore, committed an illegality in placing reliance upon the two notifications issued under section 93 of the Finance Act as they have no application to units in SEZ, in view of the decisions of the Andhra Pradesh High Court in GMR Aerospace Engineering Ltd. vs. Union of India 2019(31) GSTL 596 (AP) and a Division Bench judgement of this Tribunal in DLF Assets Pvt. Ltd. vs. The Commissioner, Service Tax, Delhi-I MANU/CE/0131/2020. Learned counsel, in the alternative, made detailed submissions on each of the issues raised in the order passed by the Commissioner (Appeals). These submissions shall be dealt with at the time these issues are examined. 12. Shri K. Poddar, learned authorized representative of the Department, however, supported the impugned order and submitted that in view of the provisions of rule 47 of the SEZ Rules, the modalities regarding refund are governed by the provisions of the Finance Act and so the conditions prescribed in the two notifications dated March 3, 2009 and May 20, 2009 for seeking exemption of service tax would have to be fulfilled. Learned authorized representative ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Chapter (IV) of the SEZ Rules deals with terms and conditions for availing exemptions, drawbacks and concessions to every Developer and entrepreneur for authorized operations. 19. "Authorised operations" have been defined in section 2(c) of the SEZ Act to mean operations which may be authorized under sub-section (2) of section 4 and sub-section (9) of section 15 of the SEZ Act. 20. Rule 31 deals with the exemption from payment of service tax and is reproduced below: "31. The exemption from payment of service tax on taxable services under Section 65 of the Finance Act, 1994 (32 of 1994) rendered to a Developer or a Unit (including a Unit under construction) by any service provider shall be available for the authorized operations in a Special Economic Zone." 21. The contention advanced by learned counsel for the appellant is that the notifications dated March 3, 2009 and May 20, 2009 would not be applicable to the case of the appellant as the appellant is exempted from payment of service tax under the provisions of section 26(1)(e) of the SEZ Act read with rule 31 of the SEZ Rules. The submission is that the appellant may have deposited the service tax pursuant to the notificati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions shall be granted to a Developer under sub-section (1), but what is important to notice is that the word "prescribe" means prescribed by the rules made by the Central Government under the SEZ Act, in view of the definition of "prescribed" under section 2(w) of the SEZ Act. The notifications dated March 3, 2009 and May 20, 2009 have been issued under section 93(1) of the Finance Act and not under section 26(2) of the SEZ Act. . 24. This issue as to whether the exemption notifications issued under section 93 of the Finance Act would be applicable to units in SEZ carrying on authorised operations or whether the exemption provided for in section 26(1)(e) of the SEZ Act would govern them was examined by the Telangana and Andhra Pradesh High Court in GMR Aerospace Engineering Limited. The second petitioner, a Developer of GMR Hyderabad Aviation SEZ, entered into a sub-lease agreement with the first petitioner for rendering certain services. It, however, claimed exemption on the ground that under section 26(1)(e) of the SEZ Act, every Developer was entitled to exemption from service tax under Chapter-V on the Finance Act on taxable services provided to a Developer or unit to carry on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s subject to provisions of sub- section (2) of section 26. Section 26(1) did not make the entitlement of a developer to certain exemptions, subject to the provisions of something else other than the provisions of sub-section (2). Therefore, the firth respondent cannot read section 26(1) to mean that the exemptions listed therein are (1) subject to the provisions of sub-section (2) of section 26, and (2) also subject to the terms and conditions prescribed in the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Tariff Act, 1985 and the Finance Act, 1994. This is especially so, since the authority of the Central Government to prescribe the terms and conditions subject to which exemptions may be granted under section 26(1), flows only out of sub-section (2) of section 26. The word "prescribe" is verb. Generally no enactment defines the word "prescribe" but the SEZ Act 2005 defines the word "prescribe" under section 2(w) to mean the rules framed by the Central Government under the SEZ Act, 2005. The space is also not left unoccupied, as the Central Government has issued a set of rules known as "the Special Economic Zones Rules, 2006", wherein ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provisions of the SEZ Act, the condition of exemption by way of refund imposed under the Notification issued under the Finance Act would be inconsistent with the provisions of the SEZ Act. It also needs to be noted that the SEZ Act was enacted in 2005, much after the enactment of the Finance Act in 1994. 21. Thus, what follows is that the Commissioner was not justified in examining whether the conditions set out in the Notification dated March 3, 2009 were satisfied or not for grant of any exemption from service tax. Section 26(2) of the SEZ Act does provide that the Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions shall be granted to the Developer under sub-section (1) but what is important to notice, and as was also observed by the Andhra Pradesh High Court, the word "prescribe" would mean "prescribed by rules made by the Central Government under the SEZ Act," in view of the definition of "prescribed" under section 2(w) of the SEZ Act. The Notification dated March 3, 2009, which has been issued under section 93 of the Finance Act, therefore, has no application." (emphasis supplied) 26. Learned authorized re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant is, therefore, entitled to refund of the service tax since the refund applications have been rejected for the reason that the conditions specified in the notifications issued under section 93 of the Finance Act have not been satisfied. The two judgments of the Supreme Court in L R Brothers and Dilip Kumar would, therefore, not help the Department. 31. However, doubts have been expressed by the Commissioner (Appeals) regarding the deposit of service tax by appellant since the input service invoice register and the bank statements did not co-relate on account of different TDS rates in the transactions. 32. Learned counsel for the appellant submitted that the refund claim was rejected by the Commissioner (Appeals) even after noticing that the bank statements and the input service register were available on record. . 33. The input service invoice register contained details of the mode of payment, cheque number, cheque realisation date/date of online transfer and the appellant had also highlighted the relevant bank entries from the bank statements to establish the co-relation. The TDS challans and TDS returns establishing the TDS deduction were also available and could be ve....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... FINDINGS OF COMMISSIONER (APPEALS) 1. Refund in respect of certain input services not duly approved by Unit Approval Committee Proviso (a) of Clause 1 of Refund Notification clearly provides that exemption from service tax is only in respect of services duly approved by Unit Approval Committee. 2. Availment of CENVAT Credit i. First two refund claims have been rejected on the basis that once a unit of SEZ has availed CENVAT Credit, it loses the benefit of exemption; ii. There is no provision under the Notification to resume the exemption benefit again by reversing the credit already taken. 3. Time limit for filing of refund In absence of admissible documentary evidence, it could not be established that 4 refund claims (except 2nd refund claim) were filed within stipulated time of 6 months. 4. No documentary evidence to satisfy condition no. 2(a) of Refund Notification On a perusal of provisions of notification, it is clear that SEZ unit is eligible for exemption only in cases where they are the same person who are liable to pay service tax under section 68(2) of Finance Act 1994 and who have actually paid the service tax 5. Nexus of input services with the 'autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emption from service tax and the letter dated June 19, 2008. The output services rendered by the SEZ unit of the appellant is for authorized operations. It is not the case of the Department that the output services have been used for services other than authorised operations nor any finding to this effect has been recorded. Thus, the service tax paid on all input services used for rendition of such output services are available for claim of refund in terms of the substantive provisions of the SEZ Act. 44. In any case, the conditions imposed by the notifications issued under the provisions of the Finance Act are merely directory in nature. 45. This issue has been considered time and again. In Mast Global Business Services India Pvt. Ltd. Vs. Commissioner of Central Tax 2018-TIOL-3115-CESTAT-BANG, the Tribunal held that the SEZ Act had an overriding effect, in view of the provisions of section 51 of the SEZ Act, over all other laws and, therefore, the ground for rejecting the refund claims was not tenable in law and even otherwise, approval from UAC was only procedural in nature and not a mandatory condition. The relevant portion of the decision of the Tribunal is reproduced below:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y other law. Further, I find that it is only a procedural requirement to get the approval from the Unit Approval Committee and is not a mandatory condition as per the SEZ Act which has an overriding effect over other laws." (emphasis supplied) 47. In SE Forge Ltd. vs. Commissioner of Central Excise, Coimbatore 2019 (365) E.L.T. 560 (Tri.- Chennai), a Division Bench of the Tribunal observed that in view of the provisions of section 26 of the SEZ Act, the notifications issued under the Finance Act cannot deprive a person from exemption of service tax. The Tribunal further held that the requirement for obtaining approval of UAC is only a procedural requirement for claiming the substantive benefit of exemption from service tax. The Department was, therefore, not justified in rejecting the claim. The relevant portion of the decision is reproduced below: "5. The issue that arises for consideration is whether the appellant is eligible for refund of service tax paid on Renting of Immovable Property Service. The original authority has rejected the refund on the ground that on the date offiling of the refund claim, the said services, viz; Renting of Immovable Property Services were not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ims stating that once a unit of a SEZ availed CENVAT credit, it cannot avail the benefit of exemption as there is no provision in the notification to claim the benefit by reversing the credit already taken. 50. The contention of learned counsel for the appellant is that this was not a ground taken in the show cause notice and, therefore, the refund claim could not have been rejected on this ground. Learned counsel has also pointed out that CENVAT credit inadvertently taken had been reversed prior to the filing of the refund claim and since reversal of CENVAT credit before its utilization is equivalent to non-availment of CENVAT credit, the condition of non-availment of CENVAT credit stands fulfilled. 51. The contention advanced by learned counsel for the appellant deserves to be accepted. Reversal of CENVAT credit prior to its utilization is as good as not availing CENVAT credit. In Mast Global Business Services India Pvt. Ltd., the Tribunal observed that if CENVAT credit has been reversed without utilization, it would amount to not taking the credit. The observations are as follows : "6.2 Now, coming to the second ground on which the refund claims have been rejected by the imp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been decided by a five Member Bench of the Tribunal in the case of Franco Italian Company Pvt. V. CCE [2000 (120) E.L.T. 792]. The aforesaid five members Bench of the Tribunal after taking into account the ratio laid down by the Supreme Court in the case of Chandrapur Magnet Wire (P) Ltd. v. CC, Nagpur [1996 (81) E.L.T. 3] has held as under : "6. Drawing similar analogy we consider that subject to the reversal of Modvat credit taken with regard to the inputs which were utilized in the manufacture of duty free goods, the manufacturer could avail of the Modvat credit as well as full duty exemption under applicable small scale exemption notification with regard to some specified goods. Reference is answered accordingly. 7. As a result the impugned order-in-appeal dated 28-1-1999 passed by the Central Excise is set aside and the appeal of Franco Italian Company (supra) is allowed subject to the conditions that Modvat credit taken of the duty paid on the inputs which were utilized in the manufacture of duty free goods, is reversed." 18. In view of the above decision we are of the opinion that reversal of Modvat credit amounts to non-taking of credit on the inputs. Hence the benef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e stipulated time. The details have been provided in the appeal memo and are reproduced below : : S. No Refund Period Notification under which refund filed Amount (INR) Date of first payment of Service Tax to the vendor Date of filing the refund claim 1. 3 Mar to 19 May 09 Notification dated 3 Mar 09 13,70,050 29 Mar 09 25 Sep 09 2. 20 May to 30 Sept 09 Notification dated 20 May 09 2,556,766 20 May 09 19 Nov 09 3. Oct to Dec 09 1,128,484 10 Oct 09 08 Apr 10 4. Jan to Mar 10 1,845,467 04 Jan 10 02 July 10 5. Apr to Jan 10 1,308,361 01 Apr 10 30 Sep 10 Total 8,209,128 56. Though, this issue did not form part of the show cause notice, yet a perusal of the details contained in the aforesaid table clearly indicate that the refund claims have been filed within six months from the date of payment of the service tax. In such circumstances the refund claims could not have been rejected on this ground. Issue No. 4 57. This issue relates to the requirement set out in paragraph 2(a) of the Notification dated March 3, 2009. This provides that the exemption contained in the notification shall be subject to the condition that the person l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns. 64. There is no evidence on the record which may indicate that any operation was carried out by the appellant from any unit outside the SEZ. Thus, all input services were used in relation to the authorized operations. This issue was examined by the Tribunal in Reliance Industries Ltd.., vs. Commissioner of C. Ex., Mumbai-I 2016 (41) S.T.R. 465 (Tri.-Mumbai). The Tribunal found as a fact that the unit of the appellant operating in SEZ was the sole undertaking of the appellant and the SEZ Act that provides for exemption of duties and taxes has an overriding effect when in conflict with other laws. The Tribunal, therefore, held that there can be no doubt that the services provided by the appellant were for authorized operations in SEZ. 65. In this connection, learned counsel for the appellant has also pointed out that a certificate issued by a chartered engineer that input services had been used in relation to authorized operations had also been placed before the Department. 66. The finding recorded the Commissioner (Appeals) on this issue, therefore, cannot be sustained. Issue No. 6 67. This issue is that the input service invoices are prior to the date of refund notificatio....