2014 (7) TMI 1014 - AT - Service Tax

Denial of refund claim to SEZ unit - authorized operations - Denial on the ground that the appellant has received the Scientific and Technical Consultancy Services which are not related to the authorized operation of the appellant which is in the list - Held that - as regards non-inclusion of services of Scientific and Technical Services, in the letter dated 20th May, 2010, office of the Development Commissioner, KASEZ, Ahmedabad, at Entry Nos. 37 and 84, of the list, specifically indicated the Scientific or Technical Consultancy Services and technical testing and analysis as services for authorized operation of appellant. It is un-disputed that these services which are rendered by Cadila was in respect of the products manufactured by the appellants, which need study as regards research and analysis and testing. These activities are must for pharmaceutical industry before marketing and/or exporting the final products - reasons given by the First Appellate Authority as well as the Adjudicating Authority for rejecting the refund claim seems to be misconstrued - Following decision of Cadila Health Care Ltd. 2009 (8) TMI 172 - CESTAT, AHMEDABAD - Decided in favour of assessee.

Issues Involved:
1. Rejection of refund claim on the grounds of non-relation to authorized operations in SEZ.
2. Non-inclusion of services in the approved list of taxable services.
3. Services received before the approval date.
4. Non-commencement of authorized operations in SEZ.
5. Lack of descriptive bifurcation of services.
6. Classification of services under "Scientific & Technical Consultancy Service".
7. Procurement of taxable services before the start of manufacturing operations.
8. Non-submission of documents/permission for subcontracting.

Detailed Analysis:

1. Rejection of Refund Claim on the Grounds of Non-Relation to Authorized Operations in SEZ:
The adjudicating authority rejected the refund claim, stating that the services rendered by M/s. Cadila Healthcare Ltd. (CHL) did not appear to be related to the authorized operations in the SEZ. The appellant failed to address this objection in their reply. The tribunal found that the services rendered, which included research, development, analysis, and testing of products, are essential for the pharmaceutical industry before marketing and/or exporting the final products. The tribunal noted that these activities must be considered part of the authorized operations.

2. Non-Inclusion of Services in the Approved List of Taxable Services:
The adjudicating authority noted that the bills raised by CHL did not specify the nature of services provided, and the appellants did not produce evidence showing the receipt and use of specified services in authorized operations. The tribunal found that the Development Commissioner, KASEZ, had specifically included "Scientific or Technical Consultancy Services" and "technical testing and analysis" in the list of authorized operations. The tribunal held that the services rendered by CHL were indeed related to the products manufactured by the appellants and thus should be considered as part of the authorized operations.

3. Services Received Before the Approval Date:
The adjudicating authority rejected the refund claim for services received before the approval date of 20-5-2010. The tribunal found that the approval list dated 20-5-2010 included the relevant services, and the services rendered by CHL were essential for the appellants' operations. The tribunal concluded that the timing of the approval should not negate the eligibility for a refund.

4. Non-Commencement of Authorized Operations in SEZ:
The adjudicating authority noted that the appellants had not commenced authorized operations of manufacture, and thus the services received did not appear to be related to authorized operations. The tribunal found that the appellants had been granted an extension for the letter of approval until 28-6-2012, and the services received were necessary for the initial stages of setting up the SEZ unit. The tribunal held that the non-commencement of manufacturing should not affect the eligibility for a refund.

5. Lack of Descriptive Bifurcation of Services:
The adjudicating authority rejected the refund claim due to the absence of a descriptive bifurcation of services and service-wise service tax paid. The tribunal found that the services rendered by CHL were clearly described as technical and scientific services for research, development, and analysis, which are essential for the appellants' operations. The tribunal held that the lack of bifurcation should not disqualify the refund claim.

6. Classification of Services Under "Scientific & Technical Consultancy Service":
The adjudicating authority questioned the classification of services under "Scientific & Technical Consultancy Service" and whether they were included in the list of approved services. The tribunal found that the services rendered by CHL were indeed classified under "Scientific & Technical Consultancy Service" and were included in the approved list of services for authorized operations. The tribunal held that the classification was appropriate and valid for the refund claim.

7. Procurement of Taxable Services Before the Start of Manufacturing Operations:
The appellants argued that it was necessary to procure taxable services from the budding stage to start functioning for production. The tribunal found that the services rendered by CHL were essential for the initial stages of setting up the SEZ unit and should be considered part of the authorized operations. The tribunal held that the procurement of services before the start of manufacturing should not affect the eligibility for a refund.

8. Non-Submission of Documents/Permission for Subcontracting:
The adjudicating authority noted that the appellants had not submitted any documents/permission for subcontracting, as specified in Rule 41 of "The Special Economic Zones Rules, 2005". The tribunal found that the services rendered by CHL were directly related to the appellants' operations and did not require separate subcontracting permissions. The tribunal held that the lack of subcontracting documents should not disqualify the refund claim.

Conclusion:
The tribunal found that the reasons given by the adjudicating authority for rejecting the refund claim were misconstrued. The tribunal concluded that the services rendered by CHL were essential for the appellants' authorized operations in the SEZ and were included in the approved list of services. The tribunal set aside the impugned order and allowed the appeal with consequential relief.

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