S. 51 of SEZ Act Supports Refund Where Taxed Services are used for Authorised Operations: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that service tax refund cannot be denied to an SEZ unit on procedural grounds when taxed services are used for authorised operations.

Dr. Reddy’s Laboratories Ltd. had an SEZ unit in Srikakulam District for manufacture of pharmaceuticals and active pharmaceutical ingredients. The unit was approved by the competent SEZ authorities and was engaged in authorised operations under the Special Economic Zones Act, 2005.

During January 2015 to November 2015, the appellant received Customs House Agent Services, Rent-a-cab services, Transport Services and Works Contract Services. These services were used in connection with authorised operations of the SEZ unit.

The appellant filed a refund claim of Rs. 34,70,994 under Notification No. 12/2013-ST dated 1 July 2013. The department rejected Rs. 33,98,949 on grounds such as invoice mismatch, non-submission of original invoices, incomplete address in invoices and non-inclusion of certain services in the approved list.

The Commissioner (Appeals) upheld the rejection.

The appellant’s counsel argued that receipt of services, payment of service tax and use of services for authorised operations were not disputed. They argued that refund was rejected only for technical and procedural reasons.

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The appellant’s counsel further argued that Section 51 of the SEZ Act, 2005 gives overriding effect to the SEZ Act over inconsistent provisions in other laws. They argued that once services were used for authorised operations, refund could not be denied on hyper-technical grounds.

For Works Contract Services, the appellant’s counsel argued that piling work for Hormone Block was part of infrastructure required for authorised SEZ operations.

The revenue counsel argued that Notification No. 12/2013-ST is conditional and its requirements must be strictly followed. They argued that defective invoices and absence of some original documents justified rejection.

The bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that Section 26 of the SEZ Act grants tax benefits for services used in authorised operations. It also observed that Section 51 gives overriding effect to SEZ provisions.

The tribunal observed that receipt of services, payment of tax and use for SEZ operations were not disputed. The objections were procedural. The tribunal held that invoice mismatch, rubber stamp corrections, missing originals for a small portion and variation in service description cannot defeat substantive refund eligibility.

The tribunal set aside the rejection order and allowed the refund claim with consequential relief.

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