By TIOL News Service

MUMBAI, NOV 19, 2015: THE appellant is a "developer" and had set up a unit in the Special Economic Zone at Jamnagar. According to the appellant, as developer unit in a Special Economic Zone, they are not liable to be charged with duties or taxes under section 26 of Special Economic Zones Act, 2005 and, having been charged for the same, they were entitled to refund of Rs.12,32,233/- borne by them.

Refund was sought on 9th May 2007. The original authority while rejecting the claim held that taxes are exempt to the extent that they are consumed within a Special Economic Zone but that the said tax had been discharged on services related to Initial Public Offering (IPO) which was billed to the corporate office of the appellant at Mumbai and not to its Zone under implementation at Jamnagar. The lower appellate authority while upholding this rejection also observed that raising finance from outside sources did not constitute authorized operations.

The appellant justified the refund claim by citing the following decisions - Norasia Container Line 2011-TIOL-574-CESTAT-DEL, Reliance Ports & Terminal Ltd - 2013-TIOL-1473-CESTAT-AHM, Intas Pharma Ltd - 2013-TIOL-1091-CESTAT-AHM & Tata Consultancy Services Ltd - 2012-TIOL-1034-CESTAT-MUM.

The AR while reiterating the findings of the lower authorities contended that the exemptionis available only when the nexus with authorized operations within the Special Economic Zone is established.

The Bench narrated the salient features of SEZ and the SEZ Act & after extracting sections 26(1), 51(1)& 53 of the SEZ Act, notification 9/2009-ST dated 03.03.2009, amending notification No. 15/2009-ST dated 20th May 2009 observed -

++ Refund application was made in May 2007 when the exemption of service tax did not have any enabling procedure other than notification no 4/2004-ST dated 31 st March 2004. Rejection of the claim was effected in December 2008 when the same notification prevailed.

++ While acknowledging the charges made by the exemption notification No. 9/2009-ST dated 3rd March 2009 it was held to be effective only from date of publication of notification and therefore not applicable in the present case. It was also held that the limitation provision in the latter notification too would not permit sanction of the refund claim.

++ Admittedly, the notification 9/2009-ST was not in existence and, hence, not the basis of the claim preferred by the appellant before the jurisdictional Central Excise officer. At the same time, it is, undoubtedly, the operational procedure put in place for implementing the provision in the Special Economic Zones Act, 2005 granting exemption of service tax for authorized operations.

++ The two notifications [4/2004-ST & 9/2009-ST], in conjunction, have given effect to the statutory promise by devising two methods for availing the exemption - by upfront exemption when the service is rendered within the geographical boundaries of the Special Economic Zone and by the refund route where the physical performance of service is not within the boundaries but is intended for the authorized operation of the developer or unit.

++ The Special Economic Zones Act, 2005 and the Rules framed thereunder are self-contained and comprehensive enough to facilitate and enable the exemptions that are statutorily embodied. There did not appear to be any ambiguity in extending the exemption to goods - imported or indigenous - because tangibility of goods made it possible to control its movement from source to consumption. Services, owing to its intangibility, was not so amenable and service providers, without the assurance of having interpreted the exemption in the proper manner, would not like to take the risk of being held liable for recovery of such tax along with interest and penalties thereon on a later date. Fear of such a contingency cannot be allowed to deprive an exemption conferred by parliamentary enactment and to defeat the very foundation of the enactment.

++ From the notification of 2009 issued by Department of Revenue, it is clear that the test of utilization of service for authorized operations is left to the wisdom of the Approval Committee and the satisfaction of the jurisdictional Assistant Commissioner regarding its actual utilization.

++ We hold that the provisions of section 26 of Special Economic Zones Act, 2005 are conferred with a primacy that cannot be denied, diluted or denigrated owing to delay in devising a facilitative mechanism that was agreeable to Revenue.

++ A misconceived notion, as entertained by the lower authorities about the distinction between the corporate office address and the site address, should not be allowed to hold sway when confronted with the factual matrix of its exclusive existence in a Special Economic Zone; consequently, there can be no doubt that the services provided by M/s NSDL was for the authorized operations in a Special Economic Zone.

The appeal was allowed. Appellant was held entitled to refund of service tax as claimed by them.

(See 2015-TIOL-2453-CESTAT-MUM)