No Blanket Exemption for SEZs: CESTAT Orders Refund Reassessment, Stresses Need for Proper Documentation [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that Special Economic Zone (SEZ) units are not automatically entitled to service tax refunds and must provide proper documentation to substantiate their claims. The tribunal remanded the matter back to the original adjudicating authority for fresh consideration.

ATC Tires Pvt. Ltd., the appellant, is a unit operating within a Special Economic Zone (SEZ) engaged in the manufacture of tyres. For the period from October to December 2013, the appellant filed a refund claim of Rs. 2,83,80,722 under Service Tax Exemption Notification Nos. 40/2012-ST and 12/2013-ST, contending that the services in question were used for authorized operations within the SEZ.

The refund sanctioning authority, after verification, approved Rs. 2,73,00,873 and rejected Rs. 10,79,849, citing various procedural lapses such as incomplete invoices, misdescription of taxable services, missing service category names, and alleged non-submission of documents. Aggrieved by the partial rejection, the appellant approached the Commissioner (Appeals), who upheld the order. The appellant then challenged the order before the CESTAT.

Live Master Class on Customs Act and FTP, Register Now

The appellant’s counsel argued that the denial was unjustified and that the services were indeed used for authorized operations. Relying on its own previous case (Final Order No. 40664/2023), the appellant argued that procedural lapses should not override the substantive benefit granted by Section 26 of the SEZ Act, 2005. They argued that all relevant documents had been submitted, either initially or during the course of the appeal, and that the grounds taken in the Order-in-Original exceeded the scope of the show cause notice.

The revenue counsel argued that the appellant failed to meet the procedural requirements laid out in the exemption notifications. They argued that SEZ exemptions are conditional and that the burden lies with the claimant to prove eligibility through clear and consistent documentation. The revenue relied on judicial precedents emphasizing strict interpretation of exemption provisions.

The single-member bench comprising M. Ajit Kumar (Technical Member) concurred with the revenue’s view that while the SEZ Act provides for exemption, the benefit is not unconditional. The tribunal explained that the deeming fiction under Section 53 of the SEZ Act applies only to authorized operations and does not nullify the procedural requirements of tax laws.

Become a Govt. Certified PF & ESI Practitioner, Register Now

The tribunal pointed out that exemptions, especially in fiscal statutes, must be proven strictly by the claimant. It cited judgments of the Supreme Court, including Dilip Kumar & Co. and Hari Chand Shri Gopal, explaining that the doctrine of substantial compliance cannot be stretched to cover habitual non-compliance or essential lapses.

In light of the detailed objections and the appellant’s claims of having now furnished the necessary documentation, the tribunal decided to set aside the impugned order. It remanded the case back to the original authority for de novo adjudication, with directions to consider the appellant’s submissions afresh, following principles of natural justice and completing the process within 90 days. The appeal was disposed of with the appellant being granted the right to consequential relief, if found eligible, under the law.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates