2022 (9) TMI 166 - AT - Service Tax

Recovery of service tax alongwith interest and penalty - services rendered to units in special economic zones (SEZ) - rendering of taxable service or not - adjudication order had failed to appreciate that the services rendered by them to M/s Credit Suisse Services (India) Pvt Ltd was not taxable owing to the privileges conferred upon the recipient by Special Economic Zones Act, 2005 - period from 1st March 2011 to 14th June 2011 - HELD THAT - The issue stands settled by the decision of the Hon ble High Court of Telengana and Andhra Pradesh in GMR AEROSPACE ENGINEERING LIMITED AND ANOTHER VERSUS UNION OF INDIA AND OTHERS 2019 (8) TMI 748 - TELANGANA AND ANDHRA PRADESH HIGH COURT where it was held that 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 the Central Government has prescribed the terms and conditions for grant of exemptions under Rule 22. Therefore, there is no question of comparing the terms and conditions prescribed in Rule 22 with the terms and conditions prescribed in the notifications issued under any one of five enactments listed in Section 26(1) to find out whether there was any inconsistency. It is on record that the required documentation was not available for the entire period of the dispute but, at the same time, it cannot be denied that at some point, the eligibility did exist. The procedural infirmities, for a shorter or longer time, does not in any way supplant the exemption accorded to the impugned supply of services - Furthermore, the findings of the adjudicating authority do not arrive at a conclusion that, but for the said procedural infirmities, the eligibility of the appellant to render such services without payment of tax was in question. The demand for allegedly rendering of services within India does not sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Taxability of services rendered to units in special economic zones (SEZ)
2. Allegation of rendering taxable services without discharging tax liability
3. Charging proportionate contribution of expenditure from subsidiary enterprises for business auxiliary service
4. Interpretation of the exemptions under the Special Economic Zones Act, 2005
5. Finding on the location of services rendered and consumed

Analysis:

Issue 1: Taxability of services to SEZ units
The appellant contested the order to recover tax, interest, and penalty under the Finance Act, 1994 for services rendered to an SEZ unit. The appellant argued that the services were not taxable due to privileges granted under the SEZ Act, 2005. The appellant cited precedents and rules to support their claim that compliance with SEZ rules exempted them from tax liability. The tribunal agreed, emphasizing the overriding nature of the exemption under Section 26 of the SEZ Act, 2005. The tribunal found procedural lapses but upheld the exemption, setting aside the demand.

Issue 2: Allegation of non-payment of tax liability
The appellant was accused of not discharging tax liabilities for services rendered during specific periods. The tribunal examined the notifications and conditions for exemptions. Despite procedural shortcomings in documentation, the tribunal noted the existence of eligibility at some point. The tribunal emphasized that procedural lapses did not negate the exemption under the SEZ Act, 2005. Consequently, the demand related to services rendered to a specific entity was set aside.

Issue 3: Charging expenditure from subsidiary enterprises
An allegation was made against the appellant for charging expenditure from subsidiary enterprises for business auxiliary services within India without discharging the tax liability. The tribunal considered this allegation and found that the demand for services allegedly rendered within India did not hold, emphasizing the different definitions of 'export' under the SEZ Act, 2005 compared to the Finance Act, 1994.

Issue 4: Interpretation of exemptions under the SEZ Act, 2005
The tribunal analyzed the interpretation of exemptions under Section 26 of the SEZ Act, 2005, emphasizing the primacy of SEZ rules over other laws. Citing relevant judgments and rules, the tribunal concluded that the exemptions provided under the SEZ Act, 2005 prevailed over procedural lapses, ultimately setting aside the impugned order and allowing the appeal.

Issue 5: Location of services rendered and consumed
The tribunal addressed the finding that services were allegedly rendered and consumed in India. By comparing definitions under the SEZ Act, 2005 and the Finance Act, 1994, the tribunal concluded that the demand for services allegedly rendered within India was not sustainable, further supporting the appellant's position.

In conclusion, the tribunal set aside the impugned order, allowing the appeal based on the overriding nature of exemptions under the SEZ Act, 2005, and the procedural lapses not affecting the eligibility for exemption from tax liability.