2014 (10) TMI 246 - AT - Service Tax

Recovery of Refund of service tax - Revenue contended that refund in respect of SEZ operation was sanctioned erroneously - Held that - Notification No. 9/2009, we find that according to Notification No. 9/2009, the exemption which is implemented in the form of cash refund of taxes paid is available when services are received and used in relation to the authorized operations. The question that arises is whether the factory building can be considered as one constructed in relation to authorized operations. Since what was being constructed was factory building there cannot be any doubt, as regards service tax benefit used in construction of building. First of all in the input service definition itself, services used in relation to construction of a factory building are considered as input services and further it cannot be said that services used in relation to factory building are not used in relation to authorized operation in view of the observation that building as such has to be considered as used in relation to authorized operations. Prima facie we find that appellant has a strong case on merits and therefore there will be waiver of pre-deposit and stay against recovery for a period of 180 days from the date of this order - Stay granted.

Summary

Issues: Claim for refund of service tax paid on input services during construction in SEZ; Validity of refund under Notification No. 9/2009-ST; Request for waiver of pre-deposit and stay against recovery.

Analysis:
The Appellant, engaged in setting up a unit for manufacturing photovoltaic cells in a Special Economic Zone (SEZ), filed refund claims for service tax paid on input services utilized during construction from December 2009 to November 2010. Initially, the claims were approved, and the refund was disbursed. However, a subsequent show-cause notice alleged that the refund was erroneously sanctioned, leading to a demand of Rs. 32,15,477 under Notification No. 9/2009-ST. The Appellant sought waiver of pre-deposit and a stay on recovery of the demanded amount.

The crux of the issue revolved around the interpretation of Notification No. 9/2009-ST, which allows refunds only for services utilized in authorized operations. The Department contended that since the construction of the factory building was ongoing and had not reached completion when the refund claims were made, no services could have been used in the authorized operations of manufacturing photovoltaic cells. However, the Tribunal analyzed the notification and opined that the exemption for cash refund is applicable when services are received and used 'in relation to' authorized operations. The question arose whether the construction of the factory building could be considered as being done in relation to authorized operations. The Tribunal found that services utilized in the construction of the factory building fall under the definition of 'input services' and are inherently linked to authorized operations. It was concluded that the building itself should be deemed as used in relation to authorized operations, supporting the Appellant's claim for service tax benefits during construction.

After evaluating the arguments from both sides and the provisions of Notification No. 9/2009, the Tribunal found merit in the Appellant's case. Consequently, the Tribunal granted a waiver of pre-deposit and stayed the recovery for a period of 180 days from the date of the order. The operative part of the order was pronounced in open court on 22.07.2014.