2019 (7) TMI 1796 - AT - Service Tax

Refund of service tax - services procured for rendering of authorised operations - exempt goods or not - denial of refund on the ground of non-compliance with the conditions of the N/N. 40/2012-ST dated 20 June 2012 at serial no. 3(f)(ii) therein inasmuch as the debit notes are not acceptable as valid substitutes for invoice and that these were not serially numbered - HELD THAT - Objections may be raised to protect the interest of revenue but not at the cost of statutory entitlement and in the absence of any evidence of ineligibility there is no conflict with interest of revenue insofar as the claim for refund is concerned. In CUMMINS TECHNOLOGIES INDIA LTD. VERSUS CCE ST MEERUT 2018 (5) TMI 565 - CESTAT NEW DELHI where it was held that rejection of refund application by the authorities below by placing reliance on the notification dated 3.3.2009 cannot be sustained and is liable to be set aside. On perusal of notification no. 40/2012-ST dated 20 June 2012 it is seen that the structure is split into two paragraphs. Both are independent components with compliance of the latter not a condition enumerated in the former - the substantive compliance of the latter will not in any way dilute the several decisions on strict compliance. Debit notes are frequently used in commercial transactions especially when the contractual arrangements are spread over longer periods and adjustments between the two parties are occasioned at regular intervals. Mere non-enumeration in rule 4A of Service Tax Rules 1994 or within the procedure of the notification will not detract from the entitlement to be sanctioned with the refund. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Dispute over rejection of a claim for refund of tax paid on services filed by M/s Manjari Stud Farm Pvt Ltd in accordance with notification no. 14/2012-ST.
- Appellant's entitlement to exemptions under the Special Economic Zones Act, 2005.
- Denial of refund due to non-compliance with conditions of the notification regarding the use of debit notes instead of invoices.
- Applicability of the principle of substantial compliance in tax statutes.
- Disagreement between the appellant and the authorities regarding the validity of supporting documents for the refund claim.
- Interpretation of statutory provisions and notifications governing exemptions for services provided in Special Economic Zones.
- Consideration of commercial practices involving the use of debit notes in transactions.
- Decision on setting aside the rejection of the refund claim and allowing the appeal.

Analysis:

The judgment by the Appellate Tribunal CESTAT Mumbai revolves around the dispute concerning the rejection of a refund claim by M/s Manjari Stud Farm Pvt Ltd. The appellant, approved as a 'developer' under the Special Economic Zones Act, 2005, sought exemptions from duties and taxes for services procured for authorized operations. The rejection was based on non-compliance with notification conditions, specifically the use of debit notes instead of invoices. The appellant argued for substantial compliance, citing relevant legal precedents supporting their position. Conversely, the authorities emphasized strict adherence to documentation requirements, leading to the denial of the refund claim.

The Tribunal analyzed the statutory framework, particularly Section 26 of the SEZ Act and related rules, in conjunction with the notifications governing exemptions for services in SEZs. It highlighted the absence of specific conditions for refund claims in the SEZ provisions, questioning the validity of conditions imposed through notifications under the Finance Act, 1994. The judgment underscored the overriding effect of SEZ laws on other statutes, emphasizing that conditions contrary to SEZ provisions cannot be enforced.

Regarding the use of debit notes, the Tribunal acknowledged their common usage in commercial transactions, especially for long-term contractual arrangements. It differentiated between the conditions outlined in the notification and the statutory exemptions, concluding that non-enumeration of debit notes in the rules or notification procedures does not invalidate their use as supporting documents for refund claims.

Ultimately, the Tribunal set aside the rejection of the refund claim, emphasizing the appellant's entitlement to exemptions under the SEZ Act and the need to balance tax enforcement with statutory entitlements. The decision to allow the appeal was based on the lack of evidence of ineligibility and the importance of upholding the purpose of SEZ schemes. The judgment clarified the distinction between procedural requirements and substantive entitlements, ensuring that rigid interpretations do not impede legitimate claims for exemptions and refunds in SEZ contexts.