ST - Notfn 15/2009 -Condition in notification cannot nullify overriding provisions of Sec 51 of SEZ Act - Refund cannot be denied for procedural infraction of having paid ST which ought not to have been paid by service provider: CESTAT
By TIOL News Service
MUMBAI, JAN 11, 2015: REFUND claims filed by the appellant have been rejected by the lower authorities and, therefore, the appellant is before the CESTAT.
The issue is whether the refund is admissible to the appellant, an SEZ unit, in respect of Service Tax paid on input services i.e. Telecommunication services, Management or Business Consultants services, Information Technology Software services, Business Support services.
Revenue is of the view that, under Notification No. 9/2009-S.T. dated 3 rd March, 2009 as amended by Notification No. 15/2009-S.T. dated 20 th May, 2009, the taxable services provided for authorised operations in a Special Economic Zone and received by the developer or units of SEZ, the refund can granted only if the services are not wholly consumed within the SEZ. In the present case as the services were wholly consumed, the refund claims were rejected.
Take a look at the extract from the referred notification -
++ Notification 9/2009-ST dt. 03.03.2009:
2. The exemption contained in this notification shall be subject to the following conditions, namely:-
++ Notification 15/2009-ST dt. 20.05.2009:
(B) in paragraph 2, for the words, "shall be subject to the following conditions", the words, "except for services consumed wholly within the Special Economic Zone, shall be subject to the following conditions " shall be substituted.
The appellant submitted that there is no dispute that the services were utilised for authorised operations. Further, this situation is revenue neutral because the appellant could have procured services without payment of Service Tax; because Service Tax was paid by vendors, the same is refundable to the appellant; that Section 51 of the SEZ Act provides overriding authority over other Acts and, therefore, since tax is not payable under the SEZ Act, it cannot be demanded under the Service Tax Law. It is also submitted that the issue is no longer res integra and is decided in their favour in the case of Intas Pharma Ltd. vs. Commissioner of Service Tax, Ahmedabad - 2013-TIOL-1091-CESTAT-AHM and in their own case - 2014-TIOL-2641-CESTAT-MUM.
The AR reiterated the findings of the lower authority and relied on the Principal Bench judgment in the case of Everest Industry Ltd. vs. Commissioner - 2013-TIOL-826-CESTAT-DEL to justify their stand that refund cannot be sanctioned in such cases under Notification No. 9/2009-ST.
The Bench after extracting the notifications in question observed -
"6. I note that the SEZ Act 2005, under Section 26 (i) (e), provides that all services imported into the SEZ to carry on authorised operations in SEZ shall be exempted. Further Section 51 of this Act gives overriding effect over other Acts. This being the legal position, the condition of Notification No. 15/2009 that refund is only admissible to services which are not wholly consumed within the SEZ cannot nullify the overriding provisions of Section 51 of the SEZ Act. The law makers made different schemes, one for granting refund of tax paid on services exported into SEZ and, the other for granting outright exemption to services which are provided to be wholly consumed within the SEZ. If the service provider pays Service Tax on the service provided to an SEZ unit, the recipient is bound to get refund unless assessment at the end of service provider was re-opened and refund was given to the service providers. This view is supported by the Hon'ble Supreme Court decision in the case of Commissioner of Central Excise vs. MDS Switchgear Ltd - 2008-TIOL-245-SC-CX
7. Notification No. 9/2009 exempts taxable service provided to SEZ Units. Once refund is provided for under this Notification, the overriding authority under Section 11(B) of the Central Excise Act as made applicable to the Finance Act, 1994, comes into play. Therefore, refund cannot be denied under the Act for procedural infraction of having paid the Service Tax which ought not to have been paid by the service provider. The matter already stands decided by the Co-ordinate Bench in the case of appellants themselves and in the case of IntasPharma Ltd. (supra)."
To the point made by the AR that the appellants are managing various units outside of SEZ who provide services to the appellants and by paying Service Tax on the service provided to the SEZ unit, they managed to encash unutilized CENVAT Credit through the pattern of first paying Service Tax in their unit outside of SEZ and then enabling the SEZ unit to take refund, the Bench observed - "I find that such practice cannot be held to be violating the legal frame work under which recipient unit in SEZ cannot be made to suffer tax incidence."
The case law cited by the AR was also distinguished by noting that the facts of that case were at variance with the present case. Inasmuch as both the contentionsmade by the AR were rejected.
The appeals were allowed with consequential relief.
(See 2015-TIOL-82-CESTAT-MUM)
