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2020 (12) TMI 1069
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.... Economic Zone SEZ. It was granted approval 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 M....
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....ertified true copies of lists of input services duly approved by the Unit Approval Committee of SEZ, S.T. 3 returns, and Balance 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 Inv....
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....ribed in the notifications dated March 3, 2009 and May 20, 2009, but in view of the provisions of section 26 of the SEZ Act read with rules 22 and 31 of the SEZ Rules, the 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 ....
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.... 17. Section 55 of the SEZ Act gives power to the Central Government to make rules for carrying out the provisions of the Act. In exercise of the aforesaid power, the Central Government made The Special Economic Zones Rules, 2006. . . 18. Rule 22 contained in 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....
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..... It also needs to be noted that the SEZ Act was enacted in 2005, much after the enactment of the Finance Act in 1994. 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 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 petiti....
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.... Act, 1994, and (ii) the terms and conditions prescribed in rules 22 and 31 of the SEZ Rules, 2006, and that therefore, section 51 of the SEZ Act, 2005 cannot be pressed into service. But this contention is unacceptable. 30. This is for the reason that section 26(1) of the SEZ Act made the entitlement to certain exemptions 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. Generall....
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....ything inconsistent contained in any other law for the time being in force, which would include the Finance Act. It needs to be noted that the Notification dated March 3, 2009 has been issued in exercise of the powers conferred by section 93 of the Finance Act. Thus, when the services rendered by the appellant are fully exempted from service tax in terms of the 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 H....
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....olative of the provisions of article 265 of the Constitution of India. 30. The appellant had filed refund applications contending that it was entitled to refund of the service tax deposited since the appellant was exempted from levy of service tax. It has been found that the appellant was not required to deposit service tax in view of the provisions of section 26(1) of the SEZ Act. The appellant 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 regi....
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....f SEZ shall be provided by way of refund of service tax paid on the specified services, except for services consumed wholly within the SEZ. Thus, w.e.f May 20, 2009 if the authorised services were consumed wholly within the SEZ, no service tax was required to be paid. . 38. The appellant has placed the findings of the Commissioner (Appeals) on the seven issues and the gist is as follows: S. No. ISSUE 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....
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....eals) committed an illegality in rejecting the refund applications filed by the appellant. 42. Learned authorised representative has, however, submitted that the appellant is not entitled to the refund. 43. The records indicate that the appellant had during the relevant period only one operating unit in the SEZ. All the input services were, therefore, used by the appellant for the authorized operations, namely, BPO(ITES) as per the specific condition prescribed under the SEZ Act for seeking exemption 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....
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.... said certificate is placed on record but the Commissioner (A) has held that the said approval was obtained from the competent authority on 25.10.2011 and therefore, after the approval, he has allowed the refund and prior to that he has rejected the same. Further, I find that in view of the settled legal position by various decisions relied upon by the appellant, conditions of approval from UAC is not a mandatory requirement as per SEZ Act vide section 51 of the SEZ Act which has an overriding effect over the provisions of any 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 req....
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....The claim of Rs. 967/- being given up by appellant is not considered in this appeal." (Emphasis supplied) 48. Thus, the Commissioner (Appeals) was not justified in rejecting the refund claims on this ground. Issue No. 2 49. This issue relates to proviso (e) of the Notification dated March 3, 2009 that provides that for claiming this exemption, the unit of a SEZ should not have taken CENVAT credit paid on the specified services used in relation to the authorized operations in the SEZ. The Commissioner (Appeals) rejected the first two claims 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 c....
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....Water Pvt. Ltd. v. Union of India [2004 (174) E.L.T. 422 (All.)] held the issue in favour of the assessee. Similar view was taken in the other judgments cited by the ld. Counsel for appellant. The gist of the issue which has been considered in these judgments is exactly the same. The relevant discussion made in the case of Hello Minerals Water (P) Ltd. (supra) is as under: 17. The question as to whether manufacturer can be treated as not having taken credit on the inputs used in the manufacture of final products, even though it was originally taken but subsequently reversed, has 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 exe....
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....that the four refund claims (except the refund claim at serial No. 2) were filed within a period of six months stipulated in the aforesaid notification. 55. Learned counsel for the appellant submitted that this issue was not raised in the show cause notice and, therefore, could not have been made the basis for rejecting the refund claim. In any case, the date of payments appearing in the input service invoice register could be co-related with the bank statement to determine whether the refund claims were filed within the stipulated time period. The appellant has given details to demonstrate that the refund claims were filed within the 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 ....
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....It provides that to claim refund of the service tax paid on the specified services should actually have been used in relation to the authorized operations in the SEZ. 62. The Commissioner (Appeals) observed that the mere approval by UAC is not enough to establish nexus and it is impossible to segregate the admissible and inadmissible invoices. 63. Learned counsel for the appellant submitted that the appellant had carried out all the operations from the SEZ unit and, therefore, all the input services were used in relation to the authorized operations. Learned counsel also pointed out that no specific finding has been recorded in the impugned order about any input service having no nexus with the authorized operations. 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 o....
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....e only for the services rendered on or after 3-3-2009 does not appear to have any legal basis. Therefore, this ground adduced by the Revenue is liable to be rejected." 70. Thus, the Commissioner (Appeals) committed an error in rejecting the refund applications for this reason since it is the date of making payments this is relevant. Issue No. 7 71. The issue is whether refund claimed under Notification dated May 20, 2009 would be admissible only in cases where the services are not wholly consumed within the SEZ. 72. The Commissioner (Appeals) has referred to the Notification dated May 20, 2009 and concluded that refund can be claimed only in respect of services that are consumed outside SEZ. 73. Learned counsel for the appellant submitted the substantive benefit of the service tax exemption provided under section 26 of the SEZ Act and rule 31 of the SEZ Rules cannot be denied by any procedural requirement under a notification. 74. This submission of learned counsel for the appellant deserves to be accepted. 75. The substantive benefit of service tax exemption provided under section 26 of the SEZ Act read with rule 31 of the SEZ Rules cannot be denied on procedu....