2013 (3) TMI 181 - AT - Service Tax

Refund of Cenvat Credit availed on Input Services utilized for providing Output services to SEZ - what should be the basis for apportioning the value of input services relatable to service rendered in area outside SEZ - held that - The ratio based on areas developed in SEZ and outside SEZ is not a good criterion for the purpose in question for various reasons. In the first place, Revenue will not be able to do verification of the measurements considering the activity involved vis-a-vis amount of refund to be granted. Further the quality of development and facilities provided inside SEZ and outside SEZ are likely to be very different. The period during which such activity was carried out also is not easily determinable. Ratio of value of services realized for output services rendered in areas inside SEZ and outside SEZ is easily determinable and does not involve the defects pointed out above for the ratio of areas. - refund may be granted adopting the ratio of value of services rendered. - Decided in favor of assessee.

Summary

Issues:
Refund claim for input services used for providing services to SEZ and DTA, basis for apportioning the value of input services, dispute over calculations for determining areas inside SEZ and outside SEZ, ratio of value of output services rendered inside SEZ and outside SEZ for refund calculation.

Analysis:
The judgment revolves around a dispute regarding a refund claim for input services used for providing services to a Special Economic Zone (SEZ) and the Domestic Tariff Area (DTA). The Appellants had taken cenvat credit on various input services and filed a refund claim under a specific notification providing exemption for input services used for providing services to SEZ and units in SEZ. The claim was partially allowed by the adjudicating authority but was disallowed to a certain extent, leading to an appeal to the Commissioner (Appeals).

The crux of the dispute lies in determining the basis for apportioning the value of input services related to services rendered in areas outside the SEZ. The lower authorities had calculated this apportionment based on the developed areas inside and outside the SEZ. However, the Appellants argued that using the ratio of the value of output services rendered inside and outside the SEZ would be a more suitable and determinable criterion. The Tribunal considered both arguments and concluded that the ratio based on the value of services rendered is a more appropriate criterion. This decision was based on the difficulties associated with verifying measurements, differences in development quality between SEZ and DTA, and the ease of determining the value of services rendered.

The Tribunal ordered that the refund should be granted by adopting the ratio of the value of services rendered inside and outside the SEZ. The Appellants provided data supporting this ratio, which was considered more favorable for them. Additionally, it was clarified that if the recalculated refund amount exceeds the originally claimed amount, the refund would be restricted to the initially claimed sum. Ultimately, the appeal was allowed based on the re-quantification of the refund to be granted, emphasizing the importance of using the value of services rendered as the basis for refund calculation.