Authorised Operations of Tyre Manufacturing Consumed Outside SEZ is Valid, Service Tax Not Demandable: CESTAT [Read Order]

The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal,(CESTAT) has held that authorised operations of tyre manufacturing consumed outside Special Economic Zones (SEZ) are valid, service tax is not demandable.

M/s. ATC Tires Private Limited, the appellant a part of the Alliance Tire Group (ATG), is a leading manufacturer of global off-highway tyres. The Corporate Office of the appellant is in Mumbai and the appellant also has two manufacturing units in India: one is an Export Oriented Undertaking (EOU) located at Dahej, Gujarat and the other one is a Special Economic Zone (SEZ) unit located at SIPCOT SEZ, Tirunelveli. The present dispute pertains to the appellant’s SEZ unit.

The SEZ unit, the appellant, had obtained a Letter of Approval dated 03.07.2019 issued by the Central Government under Section 3 of the Special Economic Zones Act, 2005 (‘SEZ Act’), as per which the approval so granted was for carrying out authorized operations of manufacturing pneumatic tyres of rubber, tyre flaps and inner tubes of rubber.

There was an audit of the appellant’s books of account by the Audit Team of the Service Tax Department during July 2018 and November 2018, during which various issues were pointed out and it is a matter of record that the appellant did file its reply to each of such issues pointed out during the course of audit.

During adjudication, the Joint Commissioner has dropped a major extent of the demand, but however, has sustained the demand to the extent of Rs.19,89,449/- along with interest and penalty. The first appellate authority granted a partial relief but sustained the demand to the extent of Rs.13,14,846/- along with applicable interest and penalty. The first appellate authority-Commissioner (Appeals) has dropped the demand for Service Tax on the renting of motor vehicles. 

Ms R. Charulatha, Advocate appeared for the appellant and Shri M. Ambe, Deputy Commissioner appeared for the respondent.

The requirement that services should be consumed within the SEZ, contained in the earlier Notifications, was superseded by the Notification in question i.e., Notification No. 12/2013 ibid., and therefore, the authorities have erred in relying on the conditions prescribed in the earlier Notifications since the same was non-est as being superseded.

The location of the SEZ unit of the appellant is in a remote area, due to which they had to employ migrant labourers who did not have accommodation to stay during the period of their employment with the appellant.

In the case of Commissioner of Income Tax v. M/s. Madras Refineries Ltd. [2003 (11) TMI 47, it was held that business also includes concrete expression of care and concern for the society at large and the people of the locality in which the business is located, that being known as a good corporate citizen brings goodwill of the local community.

CSR activities are intricately linked with the appellant’s business and hence, must be regarded as contributing to carrying out authorized operations in the SEZ and consequently, the same is also covered under Section 26(1)(e) of the SEZ Act.

The appellant has its SEZ in a remote place where security becomes necessary and therefore, they procured security services for guarding not only their factory premises but also the dormitory which was meant for accommodating the labourers working with the appellant’s SEZ unit.

A Coram comprising of Mr P Dinesha, Member (Judicial) and Mr M Ajit Kumar, Member (Technical) observed that there is no requirement that the impugned services should be consumed in the SEZ alone, so long as the services are being used for authorized operations and therefore, the demand raised and confirmed cannot sustain. 

The CESTAT set aside the impugned order and allowed the appeal.

To Read the full text of the Order CLICK HERE

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