2020 (12) TMI 1069 - AT - Service Tax

Refund of services tax - input services received by the unit of the appellant established in SEZ - refund rejected for alleged non-compliance of several conditions prescribed in the notifications dated March 3, 2009 and May 20, 2009, but in view of the provisions of section 26 of the SEZ Act read with rules 22 and 31 of the SEZ Rules, the claim for refund could not have been rejected - Refund in respect of certain input services not duly approved by Unit Approval Committee - Availment of CENVAT Credit - Time limit for filing of refund - No documentary evidence to satisfy condition no. 2(a) of Refund Notification - Nexus of input services with the authorized operations - Input service invoices are dated prior to the date of refund notification - Refund admissible only in case where services not wholly consumed within SEZ. Refund in respect of certain input services not duly approved by Unit Approval Committee - proviso (a) of the notification dated March 3, 2009 - HELD THAT - In MAST GLOBAL BUSINESS SERVICES INDIA PVT LTD VERSUS COMMISSIONER OF CENTRAL TAX, BANGALORE 2018 (9) TMI 258 - CESTAT BANGALORE the Tribunal held that the SEZ Act had an overriding effect, in view of the provisions of section 51 of the SEZ Act, over all other laws and, therefore, the ground for rejecting the refund claims was not tenable in law and even otherwise, approval from UAC was only procedural in nature and not a mandatory condition - the Commissioner (Appeals) was not justified in rejecting the refund claims on this ground. Availment of CENVAT Credit - proviso (e) of the Notification dated March 3, 2009 - HELD THAT - The reversal of CENVAT credit prior to its utilization and prior to the filing of the refund application would amount to not availing CENVAT credit. This, in turn, would mean that the requirement for claiming exemption contemplated under proviso (e) of the Notification dated March 3, 2009 stands satisfied. The rejection of the refund claim on this ground by the Commissioner (Appeals) is, therefore, not justified. Time limit for filing of refund - clause 2(f) of the Notification dated March 3, 2009 - HELD THAT - Though, this issue did not form part of the show cause notice, yet a perusal of the details contained in the aforesaid table clearly indicate that the refund claims have been filed within six months from the date of payment of the service tax. In such circumstances the refund claims could not have been rejected on this ground. No documentary evidence to satisfy condition no. 2(a) of Refund Notification - paragraph 2(a) of the Notification dated March 3, 2009 - HELD THAT - There is no evidence on the record which may indicate that any operation was carried out by the appellant from any unit outside the SEZ. Thus, all input services were used in relation to the authorized operations. This issue was examined by the Tribunal in RELIANCE INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-I 2015 (11) TMI 1048 - CESTAT MUMBAI . The Tribunal found as a fact that the unit of the appellant operating in SEZ was the sole undertaking of the appellant and the SEZ Act that provides for exemption of duties and taxes has an overriding effect when in conflict with other laws. The Tribunal, therefore, held that there can be no doubt that the services provided by the appellant were for authorized operations in SEZ - learned counsel for the appellant has also pointed out that a certificate issued by a chartered engineer that input services had been used in relation to authorized operations had also been placed before the Department. - finding recorded the Commissioner (Appeals) on this issue, therefore, cannot be sustained. Input service invoices are dated prior to the date of refund notification - HELD THAT - Tribunal in WARDHA POWER COMPANY LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NAGPUR 2012 (5) TMI 289 - CESTAT, MUMBAI wherein emphasis was placed on clause 3 of the notification dated March 3, 2009 which states that the exemption benefit in the notification shall apply only in respect of service tax paid on the specified service on or after the date of publication of the notification in the Official Gadget - the Commissioner (Appeals) committed an error in rejecting the refund applications for this reason since it is the date of making payments this is relevant. Refund admissible only in case where services not wholly consumed within SEZ - HELD THAT - Learned counsel for the appellant submitted the substantive benefit of the service tax exemption provided under section 26 of the SEZ Act and rule 31 of the SEZ Rules cannot be denied by any procedural requirement under a notification - This submission of learned counsel for the appellant deserves to be accepted. The substantive benefit of service tax exemption provided under section 26 of the SEZ Act read with rule 31 of the SEZ Rules cannot be denied on procedural grounds. It is not in dispute that the appellant was not required to deposit service tax under the notification dated May 20, 2009, but service tax was deposited. It cannot be urged that the appellant is not entitled to claim refund because of a mistake in depositing service tax even if it was not required to be deposited. This issue has been examined while dealing with the applicability of the section 26(1) of the SEZ Act - the Commissioner (Appeals) was not justified in rejecting the refund applications on this ground. The matter is remitted to the Commissioner (Appeals) to decide whether the appellant had paid service tax on the services for which the appellant had claimed refund in the five applications submitted by the appellant - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Refund in respect of certain input services not duly approved by Unit Approval Committee.
2. Availment of CENVAT Credit.
3. Time limit for filing of refund.
4. No documentary evidence to satisfy condition no. 2(a) of Refund Notification.
5. Nexus of input services with the ‘authorized operations’.
6. Input service invoices are dated prior to the date of refund notification.
7. Refund admissible only in case where services not wholly consumed within SEZ.

Issue-wise Detailed Analysis:

Issue No. 1: Refund in respect of certain input services not duly approved by Unit Approval Committee
The Commissioner (Appeals) rejected the refund claims based on proviso (a) of the Notification dated March 3, 2009, which mandates approval from the Unit Approval Committee (UAC) for the list of services required for authorized operations in the SEZ. The appellant contended that all input services were used for authorized operations as per the SEZ Act and the letter dated June 19, 2008. The Tribunal observed that the SEZ Act has an overriding effect over other laws and that the requirement for UAC approval is procedural, not mandatory. The Tribunal cited previous rulings, including Mast Global Business Services India Pvt. Ltd., which held that the SEZ Act's provisions override other laws and that procedural lapses should not deny substantive benefits.

Issue No. 2: Availment of CENVAT Credit
The Commissioner (Appeals) rejected the first two refund claims on the grounds that the appellant had availed CENVAT credit, which disqualifies them from exemption benefits as per proviso (e) of the Notification dated March 3, 2009. The appellant argued that this issue was not raised in the show cause notice and that they had reversed the CENVAT credit before filing the refund claim. The Tribunal agreed, citing precedents like Mast Global Business Services India Pvt. Ltd. and Kony Labs IT Services Pvt. Ltd., which held that reversal of CENVAT credit before utilization is equivalent to non-availment, thus fulfilling the condition for exemption.

Issue No. 3: Time limit for filing of refund
The Commissioner (Appeals) held that four refund claims (except the second) were not filed within the stipulated six-month period due to lack of admissible documentary evidence. The appellant contended that this issue was not raised in the show cause notice and provided details to demonstrate timely filing. The Tribunal found that the refund claims were indeed filed within six months from the date of payment of service tax, based on the provided evidence.

Issue No. 4: No documentary evidence to satisfy condition no. 2(a) of Refund Notification
The Commissioner (Appeals) observed that exemption could only be claimed if the SEZ unit and the person liable to pay service tax were the same. The appellant argued that this was not raised in the show cause notice and that the primary objective of condition 2(a) is to provide exemption to SEZ units, not service providers. The Tribunal agreed, noting that section 68(2) of the Finance Act, which deals with reverse charge mechanism, was not applicable as the appellant had not made any payment under it.

Issue No. 5: Nexus of input services with the ‘authorized operations’
The Commissioner (Appeals) stated that mere approval by UAC was insufficient to establish nexus and that it was impossible to segregate admissible and inadmissible invoices. The appellant argued that all input services were used for authorized operations within the SEZ. The Tribunal found no evidence suggesting operations outside the SEZ and cited Reliance Industries Ltd., which held that services provided by SEZ units are for authorized operations, thus supporting the appellant's claim.

Issue No. 6: Input service invoices are dated prior to the date of refund notification
The Commissioner (Appeals) rejected the first refund claim, stating that most input service invoices were dated before March 3, 2009, the date of the refund notification. The appellant argued that the date of payment of service tax is relevant, not the date of invoices. The Tribunal agreed, referencing Wardha Power Co. Ltd., which emphasized that the exemption applies to service tax paid on or after the notification date, regardless of when services were rendered.

Issue No. 7: Refund admissible only in case where services not wholly consumed within SEZ
The Commissioner (Appeals) concluded that refund could only be claimed for services consumed outside the SEZ, based on the Notification dated May 20, 2009. The appellant argued that the substantive benefit of service tax exemption under section 26 of the SEZ Act and rule 31 of the SEZ Rules cannot be denied on procedural grounds. The Tribunal agreed, stating that the appellant is entitled to a refund as the substantive provisions of the SEZ Act override procedural requirements.

Conclusion:
The Tribunal set aside the impugned order dated March 29, 2014, passed by the Commissioner (Appeals) and remitted the matter for a fresh decision on whether the appellant had paid service tax on the services for which refund was claimed. The appeal was allowed to the extent indicated, with the appellant required to provide additional documents to establish the payment of service tax.