2025 (6) TMI 682 - AT - Service Tax

Refund of service tax - rejection on the ground that the services do not bear a direct nexus with the authorised SEZ operations - HELD THAT - The issue was considered by the Tribunal in the matter of Tata Consultancy Services Ltd. vs. CCE ST 2012 (8) TMI 500 - CESTAT MUMBAI where the refund was permitted when service tax was paid on specified services wholly consumed during authorised operations of SEZ even after the amendment to the aforesaid Notification. The issue is squarely covered by the decision of this Tribunal in the matter of Tata Consultancy and decision rendered in appellant s own case by this Tribunal. The appellant is eligible for refund as claimed by them. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the appellant is entitled to refund of service tax paid on inputs used in Special Economic Zone (SEZ) operations under Notification No.9/2009-ST dated 03.03.2009, as amended by Notification No.15/2009-ST dated 20.05.2009.
• Whether the service tax paid on services consumed wholly within the SEZ is eligible for refund under the said notifications and relevant statutory provisions.
• Whether the refund claims rejected on the ground that the services do not bear a direct nexus with the authorised SEZ operations are legally sustainable.
• The applicability and interpretation of the refund procedure under Section 11B of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 in the context of SEZ operations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Refund of Service Tax under Notification No.9/2009-ST

Relevant legal framework and precedents: Notification No.9/2009-ST dated 03.03.2009 exempts taxable services provided in relation to authorised operations in SEZs from service tax leviable under Section 66 of the Finance Act, 1994. The refund procedure is prescribed for cases where service tax is discharged upfront and subsequently claimed as refund. The amendment via Notification No.15/2009-ST dated 20.05.2009 introduced a proviso excluding services wholly consumed within SEZ from refund claims under this notification.

Precedents include the Tribunal's decision in the appellant's own case (2024 (12) TMI 602 (Tri. -Bang.)) and Tata Consultancy Services Ltd. vs. CCE & ST (2013 (29) STR 393 (Tri.-Mum.)), where refund claims were allowed for service tax paid on services wholly consumed during authorised SEZ operations, notwithstanding the amendment.

Court's interpretation and reasoning: The Tribunal held that the Notification exempts taxable services related to authorised SEZ operations, whether provided inside or outside the SEZ. The refund mechanism applies to services procured from outside the SEZ where tax is discharged first. However, for services wholly consumed within the SEZ, no upfront tax discharge is necessary, but if tax was paid, refund eligibility remains under Section 11B.

Key evidence and findings: The appellant filed refund claims for service tax paid on inputs used in SEZ operations during December 2009 to February 2010. The Approval Committee, including the jurisdictional Commissioner, issued certificates confirming nexus and justification for the services' use in authorised operations.

Application of law to facts: The Tribunal applied the legal framework and precedents to find that the appellant's refund claims were valid. The rejection by the adjudicating authority and Commissioner (A) on the ground of lack of nexus was incorrect, given the Approval Committee's certification.

Treatment of competing arguments: The Revenue argued that refund claims were not maintainable for services consumed wholly within SEZ as per the amended Notification. The Tribunal rejected this, emphasizing that the amendment does not bar refund claims under Section 11B when tax has been paid and nexus with authorised operations is established.

Conclusion: The appellant is entitled to refund of service tax paid on inputs used in SEZ operations under Notification No.9/2009-ST as amended, subject to compliance with Section 11B and nexus certification.

Issue 2: Nexus of Services to Authorised SEZ Operations

Relevant legal framework and precedents: The nexus requirement is critical to establish that the services on which refund is claimed are directly related to authorised SEZ operations. The Tribunal relied on the Approval Committee's certification as conclusive proof of nexus.

Court's interpretation and reasoning: The Tribunal held that once the Approval Committee, which includes the jurisdictional Commissioner, certifies the nexus and justification for the services, the adjudicating authority and appellate authority cannot independently disbelieve or re-examine the nexus question.

Key evidence and findings: The appellant produced certificates from the Approval Committee confirming the nexus of services to authorised operations.

Application of law to facts: The Tribunal found the rejection of refund claims on nexus grounds to be legally unsustainable and set aside such rejections.

Treatment of competing arguments: Revenue's stand that services did not bear direct nexus was rejected as contrary to the Approval Committee's findings.

Conclusion: Refund claims cannot be denied on the ground of lack of nexus once the Approval Committee certifies the nexus and justification for the services.

Issue 3: Refund Claims for Services Wholly Consumed within SEZ

Relevant legal framework and precedents: Notification No.9/2009-ST as amended excludes services wholly consumed within SEZ from refund claims under that Notification. However, the Tribunal in Tata Consultancy Services Ltd. case clarified that refund claims under Section 11B are maintainable if service tax was paid and nexus is established.

Court's interpretation and reasoning: The Tribunal interpreted the amendment as modifying the refund procedure but not the underlying entitlement to refund under Section 11B. It emphasized that where tax has been paid on services wholly consumed within SEZ, refund cannot be denied merely because the claim is made under Notification No.9/2009-ST.

Key evidence and findings: The appellant's refund claims included services wholly consumed within SEZ, and tax was paid on such services.

Application of law to facts: The Tribunal applied the legal principle that payment of tax and nexus to authorised operations suffice for refund eligibility under Section 11B, notwithstanding procedural nuances in the notification.

Treatment of competing arguments: The Revenue's argument relying on the exclusion clause in the amended notification was rejected as it conflicted with statutory refund provisions.

Conclusion: Refund claims for service tax paid on services wholly consumed within SEZ are maintainable under Section 11B, despite the exclusion in Notification No.9/2009-ST as amended.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following key principles and holdings:

"The Approval Committee which has examined this issue has issued a specific certificate to the appellant indicating the various services received by the appellant and justification for use of such services in relation to authorised operations. The jurisdictional Commissioner of Central Excise is also a member of this Approval Committee. Once the Approval Committee has given the nexus and the justification, it was totally unwarranted on the part of the adjudicating authority and the appellate authority to go into this question and come to their own findings in the matter. Therefore, rejection by the lower authorities of the refund claims of the service tax paid on various services on this ground is bad in law and is accordingly set aside."

"Notification No.9/2009-DY 'exempts' the taxable services specified in Clause (105) of Section 65 of the Finance Act, 1994 which are provided in relation to the authorised operations in a SEZ and received by a developer or units of a SEZ, whether or not the said taxable services are provided inside the SEZ, from the whole of the service tax leviable thereon under Section 66 of the Finance Act, 1994. The refund procedure given below for operationalising the exemption applies to services which are procured from outside in respect of which the service tax liability has to be discharged first and the refund claim subsequently. In the case of services which are wholly consumed within the SEZ, there is no necessity to discharge the service tax liability ab initio. That does not mean that in a case where service tax liability has been discharged, the appellant is not eligible or not entitled for refund of service tax paid under the provisions of Section 11B of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994."

The Tribunal's final determination was that the appellant is entitled to refund of service tax paid on inputs used in SEZ operations in accordance with the statutory provisions and notifications, and the impugned orders rejecting such claims were set aside. The appeal was allowed with consequential relief.