By TIOL News Service

MUMBAI, MAR 07, 2015. FIVE appeals have been filed by the CCE, Pune against the order of the CESTAT dated 28th March, 2013 2013-TIOL-1998-CESTAT-MUM.

The issue & the decision of CESTAT is summed up as under -

ST - Appellant is a unit in the SEZ and providing IT Support Service and BPO Services - For rendering these output services, they receive various input services which are duly approved by the Development Commissioner as eligible input services - Appellant claiming refund of ST paid under the provisions of notification No. 9/2009-ST during the period October 2009 to February, 2011 - Department taking a view that since services consumed wholly within the SEZ are exempt from tax and, therefore, refund cannot be claimed on such exempt input services - Appeal to CESTAT.

Held: An identical question was considered by the Tribunal in the cases of Tata Consultancy Services - 2012-TIOL-1034-CESTAT-MUM and Wardha Power Company - 2012-TIOL-700-CESTAT-MUM where it was held that even if the appellant was not eligible for refund under Notification No . 09/2009-ST as amended by 15/2009-ST, the appellants were certainly eligible for refund under Section 11B of the CEA, 1944 r/w section 83 of the FA, 1994, subject of course to the satisfaction of conditions stipulated therein - that it is the avowed policy objective of the Government of India that exports should not bear the burden of taxes and if this policy objective has to be sub-served and the objective realized, broader view of the provisions relating to refund has to be taken - Appeal allowed with consequential relief: CESTAT

As mentioned, Revenue is aggrieved and is before the Bombay High Court.

Following are the two questions of law before the High Court -

"(i) Whether CESTAT was right in holding that refund of Service Tax was available to the assessee under Section 11B of the Central Excise Act, 1944, when the claim was actually filed under Notification No.9/2009-ST or under Notification No.15/2009-ST.

(ii) Whether CESTAT was right in holding that the assessee was eligible for refund at all, when the Notification No.15/2009-ST (which amended Notification No.9/2009-ST) specifically provided that if services are wholly consumed in the SEZ, then the same would be exempted from payment of service tax?

The respondent assessee raised a preliminary objection regarding maintainability of these appeals.

It is inter alia submitted that a reading of the order impugned in the appeal would show that the High Court has to consider as to whether the subject service provided is exempt or not; whether it is exempt under one Notification or the other and as this issue has a relation to the rate of duty, therefore, the appeal cannot be determined by this Court inasmuch as the appeal lies before the Supreme Court.

Countering this stand, the counsel for the Revenue submitted that the only issue involved is whether the regime of refund under the CEA, 1944, is available to claim refund of service tax;whether the services consumed within the Special Economic Zone can be said to be forming part of the Notifications. As the issues have no relation to the rate of duty, the preliminary objection must be answered in favour of the Revenue.

The High Court narrated the facts of the case and the decision taken by the CESTAT and after extracting the provisions of section 35G of the CEA, 1944 observed -

+ The argument of the Revenue before us is that if the services which have been provided or used / wholly consumed within the SEZ are not taxable then the claim for refund could not have been entertained at all. That is squarely an issue arising for determination and consideration. If that is answered either way then dependent on that would be the next issue as to whether the regime or manner in which refund has to be obtained would be governed by the Notifications or by substantive section 11B of the Central Excise Act, 1944.

+ If the issue was whether the services consumed in the SEZ are not taxable at all, then the claim for refund in relation to exempted services would not be maintainable.

+ The language of section 35-G particularly the words "having a relation to the rate of duty of excise" would, therefore, have a definite bearing on the present case. So long as there is an issue as to whether the services consumed within the SEZ are exempt or taxable, then, the same would be having a relation to the rate of duty.

Citing the Supreme Court decision in Navin Chemicals Manufacturing and Trading - 2002-TIOL-460-SC-CUS and after extracting paragraph 11 of the same, the High Court further noted -

++ A perusal of these observations would denote that questions relating to the rate of duty and to the value of goods for purpose of assessment are questions that squarely fall within the meaning of the said expression. The dispute as to classification of goods and as to whether or not they are covered by exemption Notification relates directly and proximately to the rate of duty applicable thereto for the purposes of assessment. Following this view of the Hon'ble Supreme Court in the two matters - Commissioner of Central Excise, Nagpur vs. Universal Ferro and Allied Chemicals Limited and Union of India vs. Auto Ignation Limited, this Court upheld the preliminary objections and dismissed the appeal of the Revenue.

The Counsel for the Revenue further submitted that the issue as to whether or not the benefit of the exemption Notification as amended was available to the assessee was never in dispute in the show cause notice; that the SCN proposed to reject the refund claim only to the extent of the service tax paid, although not payable on services wholly consumed in the SEZ for authorized operations.

The Bench then took note of the Explanation appearing below section 35E(5) of the CEA, 1944 (as it then existed) and in which clause (c) read thus -

Explanation: For the purposes of this sub-section, the determination of a rate of duty in relation to any goods or valuation of any goods for the purposes of assessment of duty includes the determination of a question -

(a) …; or

(b) …, or

(c) whether the goods are excisable goods or whether the rate of duty of excise on goods is nil; or

(d) …; or

(e) …."

The High Court thereafter observed -

++ Clause (c) of this explanation reveals as to how it covers a case of the goods being excisable at all or whether the rate of duty of excise on any goods is nil. This clause is an aid or guide with the assistance of which we can decide as to whether any question has a relation to the rate of duty of excise as appearing in section 35-G(1) of the Central Excise Act, 1944. If, in construing these words, the assistance of the explanation can be taken in terms of the law laid down by the Hon'ble Supreme Court in Navin Chemicals (supra) then, we are unable to accept the arguments of Mr. Kantharia to the contrary.

Upholding the preliminary objection raised by the respondent, the High Court dismissedthe appeals of the Revenue as not maintainable.

Nonetheless, the High Court mentioned - The Revenue shall have to take recourse to the relevant provisions of law so as to enable them to impugn and challenge the orders of the Tribunal. Leaving that course open, we dispose of these appeals.

(See 2015-TIOL-552-HC-MUM-ST)