By TIOL News Service

MUMBAI, FEB 02, 2018: THE appellant is operating as a unit within SEEPZ, SEZ, Mumbai for export of 'Information technology software services'.

They filed claims u/r 5 of CCR, 2004 for refund of accumulated CENVAT credit.

The original authority sanctioned an amount of Rs.9,43,701/- out of a total claim of Rs.11,96,536/-.

Revenue challenged this order and the Commissioner(A) held that the activity undertaken by the appellant did not conform to all the six parameters embodied in rule 6A of Service Tax Rules, 1994 which was an essential requirement for sanction of refund; that such service did not conform to the definition of 'exports' was a consequence of the finding that the place of provision of service which should be outside India as per Place of Provision of Service Rules 2012 was not.

The appellant is before the CESTAT and justifies their claim of refund by placing reliance on the decisions in Sai Life Sciences Ltd - 2016-TIOL-433-CESTAT-MUM, Bharti Airtel Ltd. - 2011-TIOL-518-HC-KAR-ST and Godaddy India Web Services Pvt Ltd - 2016-TIOL-08-ARA-ST.

At the outset, the Bench held that decisions of the Advance Rulings Authority are not binding on the Tribunal and they do not constitute a valid precedent.

The Bench further observed -

+ Finance Act, 1994 is the statute enacted for levy and collection of tax on services rendered within the territory of India. The appellant, however, operates under a special legislation enacted to govern the operations of entrepreneurs within specially demarcated areas, viz., namely, Special Economic Zones Act, 2005.

+ While export of service has been defined in the Service Tax Rules, 1994, the special legislation, with intent to promote exports by units in such special economic zones contains within it a definition of 'service' and of 'export' which are not congruent with that in the laws governing taxation in India.

+ Furthermore, under Section 51 of Special Economic Zones Act, 2005 the provisions therein shall prevail notwithstanding anything contained in any other law. Therefore, in determining whether a unit in Special Economic Zone has performed an activity amounting to exports, the provisions of Service Tax Rules, 1994 cannot be applied. Hence, there can be no doubt that the appellant has exported and, as an exporter, that service being authorized, is entitled to the consequences.

+ Units in Special Economic Zone are governed by section 26 of the Special Economic Zones Act, 2005 which exempts all duties and taxes on goods and services required for use in authorized operations.

+ Exemption is accorded through special procedure that has been laid down by the Department of Revenue by discharging the tax liability and obtaining refund thereafter. In those circumstances, there is no scope for accumulation of CENVAT credit by a unit in the Special Economic Zone.

+ Nevertheless, in the instant case, tax has been collected and the appellant has not been refunded this tax as per procedure laid down in notification no. 17/2011-ST dated 1 st March 2011. The notice has not ventured to ascertain the cause of such accumulation and the lower authorities have also not discussed this aspect.

+ The destination of the services rendered by the appellant being undoubtedly the location of overseas clients, it necessarily follows that the domestic tax should not be carried outside the country. This requires refund of such tax, which in the present case, is represented by accumulated CENVAT credit. In the absence of other provision, the appellant has no option but to rely upon rule 5 of the CENVAT Credit Rules, 2004 to get such tax, which should not have been collected or should have been refunded owing to the primary provision of section 51 of Special Economic Zone Act, 2005, reimbursed. [ All India Federation of Tax Practitioners - 2007-TIOL-149-SC-ST relied upon]

The impugned order was set aside and the appeal was allowed with consequential relief.

(See 2018-TIOL-410-CESTAT-MUM)