Services Provided to SEZ Units Not Covered Under Rule 6(3) of CCR, No Reversal of Credit Required: CESTAT [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that services provided to Special Economic Zone (SEZ) units are not covered under Rule 6(3) of the CENVATCredit Rules. Hence, no reversal of CENVAT credit is required.

Sapient Consulting Pvt. Ltd., the appellant, is engaged in providing manpower recruitment and related services to SEZ units and other clients. The department took the view that since the appellant was providing both taxable and exempted services, they were required to reverse credit under Rule 6(3) of the CENVAT Credit Rules, 2004.

A show-cause notice dated 11 February 2012 was issued demanding Rs. 74,95,516 for the period April 2010 to March 2011. The Principal Commissioner, vide order dated 21 September 2015, confirmed the demand along with an equal penalty under Section 78 of the Finance Act, 1994 and an additional penalty under Section 77.

Aggrieved by the order, the appellant filed an appeal before the tribunal. The appellant’s counsel argued that the demand was not sustainable as Rule 6(6A) of the CENVAT Credit Rules, inserted by Notification No. 03/2011-CX (NT) dated 1 March 2011, made it clear that Rule 6(1) to 6(4) would not apply to services provided to SEZ units for their authorized operations.

The counsel explained that by virtue of Section 144 of the Finance Act, 2012, this amendment was made retrospective, making the demand unsustainable. They further argued that the CBEC letter No. 334/1/2012-TRU dated 16 March 2012 also clarified that no reversal is required when services are provided to SEZ units.

The counsel also submitted that the impugned order went beyond the scope of the show cause notice by invoking the conditions of Notification No. 09/2009-ST, which was never alleged earlier. They argued that at most, the appellant could be asked to reverse proportionate credit, not the entire amount, and that extended limitation and penalties could not be invoked.

The department’s counsel argued the findings of the impugned order, contending that since the appellant provided both taxable and exempt services, it was bound to comply with Rule 6(3) by reversing the credit.

The two-member bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that Rule 6(6A), introduced by Notification No. 03/2011-CX (NT), specifically excluded services provided to SEZ units from the scope of Rule 6(1) to 6(4).

The tribunal further observed that through Section 144 of the Finance Act, 2012, this benefit was made retrospective. The tribunal explained that services rendered to SEZ units are treated as export of services under the SEZ Act, 2005, and the provisions of Rule 6(3) do not apply.

The tribunal also referred to CBEC’s clarification issued in 2012 and its earlier decision in Mercer Consulting India Pvt. Ltd., which held that no reversal is required in such cases.

The tribunal pointed out that Rule 6(3) does not apply to services provided to SEZ units for authorized operations and that the department’s demand was contrary to the retrospective amendment and settled law. The tribunal found that the appellant had correctly availed and utilized credit and was not liable to any reversal, interest, or penalty.

The tribunal allowed the appeal and set aside the impugned order, ruling that no reversal of CENVAT credit is required for services provided to SEZ units.

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