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Judgment
The brief facts of the case are that the appellant, a unit under Special Economic Zone, Gangaikondan are the holder of Service Tax Registration No.AACCN5773ASD002. They had filed two refund claims with the jurisdictional Assistant Commissioner for an amount of Rs.1,27,11,493/- & Rs.1,19,11,399/- respectively, under Notification No.40/2012-ST, dated 20.06.2012 as amended by Notification No.12/2013-ST, dated 01.07.2013. As per the said Notification, the services on which service tax is leviable under section 66B of the Finance Act, 1994, received by a unit located in a Special Economic Zone (hereinafter referred to as SEZ) or Developer of SEZ and used for the authorized operations, are exempted from the whole of the service tax, education cess and secondary and higher education cess leviable thereon. The said exemption is provided in 2 ways, viz, one by way of refund of service tax paid on the specified services received by a unit located in a SEZ or the developer of SEZ and used for the authorized operations and the other is by way of not paying service tax ab initio. Among the two, the appellant had chosen the option of getting exemption by way of refund. Accordingly, they filed the impugned refund claims for the periods July 2016 to September 2016 and October 2016 to December 2016 respectively. Vide the above claims, they had claimed refund of service tax paid on various services such as Business Auxiliary Service, Business Support Service, Management Consultancy Service, Banking & Financial Service, etc., which were claimed as received and exclusively used for authorized operations, service tax paid under Reverse charge mechanism and Service tax paid by their head Office and distributed to them through Input Service Distributor Invoices. After verification of the claim, the original authority partially rejected the claim for the period July 2016 to September 2016 to the extent of Rs.8,83,297/- vide Order-in-Original No.76/2017 dt. 17.8.2017. He partially rejected the claim for the period October 2016 to December 2016 to the extent of Rs.2,71,056/- vide Order-in-Original No.77/2017 dt. 21.08.2017. Against such orders, the appellants preferred appeals before the Commissioner (Appeals) who vide the orders impugned in these appeals partially upheld the rejection of refund claim to the tune of Rs.4,33,614/- out of Rs.8,83,297/- and Rs.2,66,798/- out of Rs.2,71,056/-. The present appeals are preferred against such partial rejection of refund claim.
2.1 On behalf of the appellants, the Ld. Counsel Shri Raghavan Ramabhadran appeared and argued the matter. He submitted that in appeal ST/40349/2019 an amount of Rs.3,75,561/- has been denied stating the reason that the refund claim has been filed beyond the time limit prescribed in para 3 (III) (e) of Notification No.12/2013-ST dt. 1.7.2013. It is his case that the corporate office of Alliance Tyre Group (ATC) is registered as an Input Service Distributor (ISD) for distribution of credit which are commonly used amongst various units. The factory located in Tirunelveli is a SEZ Unit (appellant herein) which has obtained separate service tax registration. The appellants had claimed such service tax distributed by its input service distributor registration office at Mumbai for services received at Mumbai (ISD) which is common for all the units of Air India including appellant SEZ unit. The authorities below rejected the claim stating that the claim is filed beyond the period of one year from the date of payment of service tax as prescribed in para 3 (III) (e) of Notification No.12/2013-ST. In fact, with respect to the refund in regard to the credit distributed to the appellant, the relevant document is the invoices issued by the ISD located at Mumbai. The department has computed the period from the date of payment of service tax by Mumbai office. However, when the one year period is computed from the date of receipt of invoice document as distributed to the appellant office, the refund claim would be well within time. Without receiving the relevant document distributing the credit the appellant would not be able to avail credit or claim the refund. A harmonious reading of the provisions of Rule 7 and Rule 9 of CCR, 2014 is necessary to compute the time period prescribed in the Notification. When the appellant is eligible to avail credit as per Rule 7 by way of distribution of credit, the same cannot be denied stating that there is delay in filing the refund claim. It is also pointed out by him that the said clause in the notification also grants powers to condone the delay and the same ought to have been condoned. When substantive conditions are satisfied, the procedural delay ought to have been condoned by the department.
2.2 Further, the exemption granted flows from Section 26 of SEZ Act, 2005. Section 51 of the said Act provides that SEZ Act would override all other enactments. Therefore, the conditions prescribed in the notifications cannot be applied to frustrate the grant of refund. He relied upon the decision in the case of GMR Aerospace Engineering Limited and another Vs UOI and others reported in 2019 (8) TMI 748 Telegana and Andhra Pradesh High Court to argue that the Hon'ble High Court had analysed the very same issue with regard to the exemption granted to SEZ unit. It was held that the notifications issued under Section 93 of Finance Act cannot be pressed into service for finding whether unit in a SEZ qualifies for exemption or not. It is his contention that since the appellant is SEZ unit, the refund of the service tax cannot be denied for non-compliance of conditions in the notification.
2.3 With regard to rejection of refund claim to the tune of Rs.39,744/-, he submitted that no specific reason has been given for denying this amount and the same has been clubbed with the previous issues without giving any specific finding or grounds raised for rejecting the amount. The argument put forward for rejection of Rs.3,75,561/- would be applicable to this amount also.
2.4 With regard to rejection of Rs.9,841/-, it is submitted by Ld. Counsel that these amounts are with regard to refund of Swatchh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC). Since Notification No.12/2013-ST is issued under Section 93 of the Finance Act, 1994, the appellant would be eligible for refund of the CESS also. Hence once the service tax is exempted then the Cess attached to the same should also be exempted. He also referred that with effect from 3.12.2016 amendments were brought forthwith in Notification No.12/2013 to grant refund of SBC as well as KKC.
2.5 With regard to denial of refund of Rs.8469/- holding that the classification shown in the invoices is Event Management Service, he submitted that, according to the appellant, it is supply of tangible goods service. As per the SEZ Act, 2005 the only condition for refund / exemption of service tax is that services should be used for authorized operations. Whether exemption can be denied stating that the services are not specified services was the same issue that was analyzed in the case of GMR Aero Space Engineering Ltd. (supra). The decision in the said case would apply and the rejection on this ground is against law.
2.6 In Appeal ST/40250/2019, Rs.1,93,917/- has been denied stating that the service provider has issued invoices under Event Management Service and that the said service is not a specified service. For the very same reason Rs.51,381/- also has been denied. Similarly, Rs.22,500/- has been denied stating that Real Estate Consultancy Service is not a specified service. These issues pertain to the period post-1.7.2012. After 2012, classification of service was only used for statistical or accounting purposes. Hence refund cannot be denied on the ground that the service provider had adopted a particular classification in his invoice. Further, refund ought to be granted as the exemption flows from Section 26 of SEZ Act. He prayed that appeals may be allowed.
Ld. A.R supported the findings in the impugned order.
I have heard the argument put forward by both sides and perused the records carefully. The foremost argument put forward by the Ld. Counsel is that appellant unit being a SEZ unit is exempted from payment of taxes / duties under Section 26 of the SEZ Act. The issue whether conditions imposed as per Notification issued under Section 93 of the Finance Act would prevail over Section 26 of SEZ Act so as to deny the exemption from tax was considered by the Hon'ble High Court in the case of GMR Aerospace Engineering Ltd. (supra). The Hon'ble High Court observed as under :
"16. That takes us to the main contention revolving around the SEZ Act, 2005, SEZ Rules, 2006, Finance Act 1994 and the notifications issued by the Government. Before looking at the interplay of all these, it may be useful to first take note of the scheme of the Act. The broad scheme and the features of the SEZ Act, 2005 was taken note of by a Division Bench of the Madras High Court to which one of us (VRSJ) was a party, in Nokia India Sales Pvt. Ltd. v. the Assistant Commissioner (CT), Sriperumbudur Assessment Circle, Chennai - 2017 (101) VSP 361 (Mad).
"18. The Parliament enacted the Special Economic Zones Act, 2005 with a view to provide for the establishment, development and management of Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. Section 3(1) of the Act enables the Central Government, the State Government or any person, either jointly or severally, to establish a Special Economic Zone, for the manufacture of goods or rendering of services or for both or as a free trade and warehousing zone. Section 5 of the Act prescribes the guidelines for notifying an area as a Special Economic Zone. A careful look at Section 5 would show that these guidelines include (i) generation of additional economic activity; (ii) promotion of exports of goods and services; (iii) promotion of investment from domestic and foreign sources; (iv) creation of employment opportunities; (v) development of infrastructural facilities; and (vi) maintenance of sovereignty and integrity of India. The areas falling within the Special Economic Zone may be demarcated into (i) processing area for the manufacture of goods or rendition of services; (ii) area for trading or warehousing purposes; and (iii) non processing areas, other than those covered by the first two items.
Under Section 7 of the Act, any goods or services exported out of or imported into or procured from the Domestic Tariff Area, are exempt from payment of taxes and duties under all enactments specified in First Schedule. Under Section 15 of the Act, any person intending to set up a unit for carrying on the authorised operations in a Special Economic Zone may submit a proposal to the Development Commissioner. He must, in turn, send the proposal to the Approval Committee. The proposal may be approved by the Committee with or without modifications or it can be rejected.
Section 26 of the Act (Central) entitles every Developer or Entrepreneur to the exemptions, drawbacks and concessions listed in Clauses (a) to (g) of Sub-Section (1) thereto. Section 29 makes it clear that the transfer of ownership in any goods brought into or produced or manufactured in any unit or the removal thereof from such unit, can be allowed subject to the terms and conditions stipulated by the Central Government.
Section 30 of the Central Act makes any goods removed from a Special Economic Zone to the Domestic Tariff Area, chargeable to duties of customs including anti-dumping, countervailing and safeguard duties. It will be of interest to note that Section 30 of the Central Enactment is exactly identical to Section 15 of the TNSEZ Act, 2005.
Section 50 of the Central Enactment empowers the State Government, to notify policies for developers and units and also to take suitable steps for enactment of any law, for the purposes of giving effect to the provisions of this Act. The reason as to why the Central Enactment empowers the State Government to enact a law, is that in respect of taxes, levies and duties that could be imposed only by the State Government, by virtue of the relevant entries in List II of the VII Schedule to The Constitution, the Central Government is not competent to grant exemption. Therefore, while the Central Enactment provides for exemption to the units located in SEZs created thereunder, only in respect of the taxes, levies and duties that can be imposed by the Central Government, a State Enactment alone can provide for exemption from payment of taxes, levies and duties that can be imposed exclusively by the State Government.
Section 51 of the Central Enactment confers overriding effect upon the Act, vis-à-vis any other law. Section 53 declares a Special Economic Zone to be a territory outside the Customs Territory of India, for the purpose of undertaking the authorized operations. The Special Economic Zone will be deemed to be a port, inland container depot, land station and land customs station under Section 7 of the Customs Act, 1962."
In the case on hand, there is no dispute on facts. The undisputed facts are : (1) that the 1st petitioner is a unit set up in GMR Aviation SEZ, (2) that the 1st petitioner is approved as a co-Developer vide Letter of Approval dated 20-9-2010, (3) that the 1st petitioner was issued with a certificate dated 29-9-2010 by the Development Commissioner to the effect that the services consumed within the SEZ for carrying out authorised operations are exempt from the levy of service tax, (4) that the 2nd petitioner is the Developer of GMR Aviation SEZ, as borne out by a certificate dated 31-5-2010 and a Letter of Approval dated 31-5-2010; (5) that as a Co-Developer, the 2nd petitioner entered into a sub-lease agreement with the petitioner on 1-6-2010, for rendering the services of lease of land, supply of electricity and supply of water and (6) that the services so rendered are by a Co-Developer to a Developer, which is a unit located in the SEZ.
In the light of the above admitted facts, the only question that arises for consideration is as to whether the availability of exemptions under Section 26 of the SEZ Act would depend not only upon the terms and conditions prescribed under Section 26(2), but also upon the terms and conditions prescribed in the notifications issued under various enactments such as Customs Act, 1962, Customs Tariff Act, 1975, Central Excise Act, 1944, Central Excise Tariff Act, 1985, Finance Act, 1994 and Central Sales Tax Act, 1956 etc., enlisted in clauses (a) to (g) of sub-section (1) of Section 26 of the Act.
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In order to find an answer to this question, one must understand in conceptual terms, what a Special Economic Zone is. As pointed out by the Madras High Court in Nokia India Sales, a SEZ (1) is a territory outside the Customs Territory of India for the purpose of undertaking authorized operations and (2) is deemed to be a port, in land container depot, land stations and land customs station under Section 7 of the Customs Act, 1962. This is by virtue of Section 53 of SEZ Act, 2005. Keeping this core concept in mind, let us now go to the provisions of the Act. Section 7 of the Act exempts from payment of taxes, duties or cess, under all enactments specified in the First Schedule, any goods or services exported out of or imported into or procured from Domestic Tariff Area, by a unit in a SEZ or a developer. But Finance Act, 1994 is not one of the enactments specified in the First Schedule. Therefore, Section 7 has no application to the case on hand.
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As rightly pointed out by Sri S. Niranjan Reddy, Learned Senior Counsel appearing for the petitioner, the word "prescribe" appearing in sub-section (2) of Section 26 has to be understood with reference to the definition of the word "prescribed" appearing in Section 2(w) of the SEZ Act, 2005. Section 2(w) of the Act reads as follows :
"prescribed" means prescribed by rules made by the Central Government under this Act."
Therefore, the terms and conditions subject to which the exemptions are to be granted under sub-section (1) of Section 26 should be prescribed by the Rules made by the Central Government under the SEZ Act, 2005. Being conscious of this fact, the executive has incorporated Rule 22 in the SEZ Rules, 2006 issued in exercise of the power conferred by Section 55 of the SEZ Act. It is not necessary to extract Rule 22, since there is no dispute about the fact (1) that the petitioners have complied with the prescriptions contained in Rule 22 of the SEZ Rules, 2006 and (2) that Rule 22 of the SEZ Rules, 2006 does not stipulate the filing of forms A1 and A2 as prescribed in the three notifications issued under Section 93 of the Finance Act, 1994.
In other words, the 5th respondent does not dispute the fact that the petitioners have fulfilled the terms and conditions stipulated in Rule 22 of the SEZ Rules, 2006 and that if those Rules are considered on a stand alone basis, the petitioners would be entitled to the exemptions.
Having taken note of the provisions of the SEZ Act and Rules, let us have a look at the Finance Act and the relevant notifications. Section 93 of the Finance Act, 1994 reads as follows :
"93. Power to grant exemption from service tax (1).
(1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as may be specified in the notification, taxable service of any specified description from the whole or any part of the service tax leviable thereon.
(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt any taxable service of any specified description from the payment of whole or any part of the service tax leviable thereon, under circumstances of exceptional nature to be stated in such order."
A look at Section 93 of the Finance Act, 1994 would show that it has nothing to do with the units located in a SEZ. Section 93 is a general power of exemption available for the benefit of all and sundry. In fact, Section 93 was substituted in its present form by Finance (No. 2) Act, 1998 with effect from 16- 10-1998. The notifications issued under Section 93 may cover taxable services of any description. Even the units located outside a SEZ are entitled to the benefit of the notifications issued under Section 93 of the Finance Act, 1994, if the conditions stipulated in those notifications are fulfilled.
The SEZ Act, 2005 is also a parliamentary enactment issued later in point of time to the Finance Act, 1994 and Section 51 of the Act declares that the provisions of the SEZ Act, 2005 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. Section 51 reads as follows :
"51. Act to have overriding effect. - The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act."
The contention of Smt. Sundari R. Pisupati, Learned Senior Standing Counsel is that there is no inconsistency between (i) the terms and conditions prescribed in the notifications issued under Section 93 of the Finance Act, 1994 and (ii) the terms and conditions prescribed in Rules 22 and 31 of the SEZ Rules, 2006, and that therefore, Section 51 of the SEZ Act, 2005 cannot be pressed into service. But this contention is unacceptable.
This is for the reason that Section 26(1) of the SEZ Act made the entitlement to certain exemptions subject to provisions of sub-section (2) of Section 26. Section 26(1) did not make the entitlement of a Developer to certain exemptions, subject to the provisions of something else other than the provisions of sub-section (2). Therefore, the 5th respondent cannot read Section 26(1) to mean that the exemptions listed therein are (1) subject to the provisions of sub-section (2) of Section 26, and (2) also subject to the terms and conditions prescribed in the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Tariff Act, 1985 and the Finance Act, 1994. This is especially so, since the authority of the Central Government to prescribe the terms and conditions subject to which exemptions may be granted under Section 26(1), flows only out of sub-section (2) of Section 26. The word "prescribe" is verb. Generally no enactment defines the word "prescribe". But 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.
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The word "prescribe" is used in the present tense in Section 26(2) and in the past tense in Section 7. Both will have the same meaning as assigned to the word under Section 2(w). The moment a set of rules is issued either in respect of matters covered by Section 7 or in respect of matters covered by Section 26(1), there is no scope for invoking any other law for imposing any other condition.
The benefit of exemptions granted under the notifications issued under Section 93 of the Finance Act, 1994, are available to any one and not necessarily confined to a unit in a special economic zone. Section 93 of the Finance Act, in that sense is a general power of exemption available in respect of all taxable services. But, Section 26(1) is a special power of exemption under a special enactment dealing with a unit in a special economic zone. Therefore, the notifications issued under Section 93 of the Finance Act, 1994 cannot be pressed into service for finding out whether a unit in a SEZ qualifies for exemption or not."
In the case of Cybercam Datamotive Information Ltd. - 2018-TIOL410-CESTAT Mumbai, the above decision was followed by the Tribunal holding that conditions prescribed in the notification cannot be applied so as to deny the refund when substantial conditions prescribed in the SEZ Act have been fulfilled. As per SEZ Act, when the service has been used for authorized operations exemption would be eligible.
For these reasons, I find that rejection of refund claim stating that refund is time-barred as well as the classification of services is different or that the services are not specified services cannot sustain and requires to be set aside, which I hereby do.
An amount of Rs.9,841/- has been rejected being refund of SBC and KKC. On perusal of the records, it is seen that all these invoices are prior to 2016. The amendments introduced in Notification No.12/2013-ST so as to exempt SBC & KKC have come into effect only on 3.2.2016 and 1.6.2016 . For this reason, I am of the view that the authorities below have rightly rejected the refund claim with regard to SBC & KKC. Rejection of Rs.9,841/- with regard to SBC and KKC respectively is therefore upheld.
In appeal No.ST/40350/2019 the rejection is for the reason that services in the nature of Event Management Services, Real Estate Consultancy Services are not specified. This issue has been already discussed in the earlier paragraph and the decision of GMR Aero Space Engineering would also apply.
From the foregoing, I hold that Appeal ST/40349/2019 is partly allowed upholding the rejection of Rs.9841/- (SBC & KKC). Appeal ST/40350/2019 is allowed. In both appeals consequential relief, if any, would be eligible to the appellant.
(Order pronounced in court on 17.03.2021)