The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad bench has reaffirmed the supremacy of the Special Economic Zones (SEZ) Act, 2005, over other tax laws, stating that procedural lapses or conditions in tax notifications under the Finance Act cannot negate the tax exemptions granted to SEZ units for authorised operations within SEZ.
The case involved M/s. EXL Services SEZ BPO Solutions (P) Ltd., an SEZ unit operating in Noida and Jaipur, which had filed a refund claim of Rs.20,08,913 for service tax paid on various input services used for its authorised operations within the SEZ during October 2010 to December 2010.
The dispute arose when the SEZ authorities questioned the eligibility of the refund claim based on specific conditions outlined in Notification No. 9/2009-ST. These conditions required SEZ units to obtain approval for a list of specified services from the Approval Committee and to file refund claims within six months of actual payment of service tax to service providers.
The appellant had not initially included some of the services in their list of approved services but had sought approval for them later. The adjudicating authority rejected the refund claim on the grounds that these services were not mentioned in the initial application, despite receiving subsequent approval from the SEZ authority.
The appellant, represented by Atul Gupta and Prakhar Shukla contended that the SEZ Act takes precedence over other tax laws and that any tax collection from SEZ units would be without legal authority. They argued that the conditions in the notification were procedural in nature and did not override the exemption granted under the SEZ Act.
The respondent revenue, represented by Santosh Kumar, reiterated the findings of the order.
The bench upheld the argument raised by the appellant, citing Section 26(1) of the SEZ Act, which grant SEZ units exemptions from customs duty, excise duty, service tax and other taxes for authorised operations within the SEZ.
The bench also highlighted Section 51 of the SEZ Act, which explicitly states that the provisions of the SEZ Act have an overriding effect over any other law in force. This means that no tax or duty can be levied or collected on goods and services meant for SEZ operations, making any attempt to collect such taxes without legal basis.
The bench emphasised that procedural lapses or conditions in tax notifications such as incomplete documentation or non-compliance with conditions specified in tax notifications should not negate the substantive benefits of exemptions granted under the SEZ Act, which has an overriding effect over other laws. It was also noted that the provisions of the SEZ Act are substantive and mandatory, not mere technical requirements.
The bench referred to decisions of Metlife Global Operations Support Center (P) Ltd. and ECLERX Service Ltd., wherein it was held that procedural requirements, such as obtaining approval from Unit Approval Committees (UACs), are not mandatory conditions that can negate the substantive benefits of tax exemptions under the SEZ Act.
It was also held that the claim for refund made in terms of the notification No 9/2009-ST cannot be denied just for the reason that the taxable services in respect of which the claim has been made, are not mentioned in the list of specified services approved by the SEZ authorities.
In conclusion, the two-member bench comprising Mr. P.K. Choudhary (Judicial Member) and Mr. Sanjiv Srivastava (Technical Member) set aside the order and allowed the appeal filed by the appellant.
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