Six-Month Procedural Limitation Under Service Tax Notification cannot be Pressed to Deny SEZ Refund: CESTAT in Renault Nissan Case [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that the six-month time limit under Notification No. 9/2009-ST cannot be pressed to deny refund of service tax to a Special Economic Zone(SEZ) unit when the substantive exemption flows from the SEZ Act.

Renault Nissan Technology and Business Centre India Pvt. Ltd., the appellant, is an SEZ unit approved by the competent SEZ authorities. The appellant used various input services for its authorised operations within the SEZ during the period from March 2009 to October 2009 and paid service tax on those services.

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SEZ units are exempt from service tax on services used for authorised operations under Section 26(1) of the SEZ Act, 2005. Since the service tax law did not grant an upfront exemption, Notification No. 9/2009-ST dated 3 March 2009 was issued to operationalise the exemption through a refund mechanism. The appellant filed refund claims under this notification for the service tax paid.

The adjudicating authority sanctioned part of the refund but rejected a substantial portion. The rejection was mainly on the ground that several claims were filed beyond six months from the date of payment of service tax, as required under clause 2(f) of the notification. Some claims were also rejected on the ground of lack of nexus with authorised operations.

The Commissioner (Appeals) upheld the partial rejection. Aggrieved by these orders, the appellant approached the CESTAT arguing that the SEZ Act is a special legislation and Section 51 of the Act gives it overriding effect over any other law. They argued that the exemption under Section 26 is a substantive statutory benefit and procedural conditions in a service tax notification cannot defeat this right.

They further argued that Section 11B of the Central Excise Act, which allows one year to file refund claims and is made applicable to service tax through Section 83 of the Finance Act, should apply instead of the six-month limit in the notification.

The appellant also argued that once services are approved by the SEZ Approval Committee, their nexus with authorised operations stands established and cannot be questioned. The counsel also pointed out that no show-cause notice was issued before rejecting part of the refund, which violated principles of natural justice.

The revenue counsel argued that strict compliance with Notification No. 9/2009-ST was mandatory. According to the department, the six-month limitation prescribed in the notification was binding and claims filed beyond this period were time-barred. The revenue also questioned the jurisdiction of the tribunal by arguing that the refund claimed was like a rebate. The department further argued that certain services did not have a clear nexus with authorised SEZ operations and were rightly rejected.

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The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) rejected the revenue’s objections. The tribunal observed that issuance of a show cause notice is the foundation of adjudication and failure to issue one cannot be justified.

The tribunal observed that the SEZ Act is a self-contained special law and Section 51 gives it overriding effect over other statutes. It explained that Notification No. 9/2009-ST only provides the procedure to implement the exemption and cannot curtail the benefit granted by Parliament under the SEZ Act.

The tribunal observed that if the six-month limitation under the notification is treated as absolute, the exemption under the SEZ Act would fail, which is not permissible in law. The tribunal pointed out that Section 11B of the CentralExcise Act is a beneficial provision and its one-year limitation period applies to refund claims by SEZ units. The tribunal set aside the impugned orders and allowed all the appeals with consequential benefits as per law.

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