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2025 (6) TMI 1264 - AT - Service TaxExemption from service tax - Construction Service other than residential complex including commercial / industrial buildings or civil Structures provided to developers / units of Special Economic Zones (SEZ) - non-production of Form A-1 and Form A-2 - non-fulfilment of conditions prescribed in the notifications issued by the department under the Customs/Central Excise/Finance Acts - applicability of N/N. 04/2004-S.T. dated 31.03.2004 as amended N/N. 09/2009-S.T. dated 03.03.2009 N/N.17/2011-S.T. dated 01.03.2011 - HELD THAT - Chapter X-A providing for special provisions relating to SEZ were omitted or removed from the Customs Act 1962 consequent to the Parliament enacting a special legislation viz. SEZ Act 2005. Moreover in order to provide more clarity and purpose of such separate legislation for SEZ a specific Section 51 of the said Act of 2005 has provided a non obstante clause stating that the provisions of SEZ Act 2005 shall have the overriding effect notwithstanding anything inconsistent therewith if any contained in any other law for the time being in force. Thus if an exemption is provided under Section 26 of the SEZ Act 2005 then the same cannot be taken away by prescribing certain conditions elsewhere in any other law or notification issued thereunder which is contrary to the legal provisions made therein. The dispute in respect of similar issue relating to exemption from payment of service tax in respect of services provided to SEZ have been dealt with in the case of GMR Aerospace Engineering Limited 2019 (8) TMI 748 - TELANGANA AND ANDHRA PRADESH HIGH COURT by the Hon ble Andhra Pradesh High Court by holding that standalone exemptions under Section SEZ law are not subject to provisions of any other law including Finance Act 1994 and therefore such exemption cannot be denied for mere non-filing forms as these are not required under SEZ law. The Co-ordinate Bench of the Tribunal in the case of Cummins Turbo Technology 2023 (11) TMI 1077 - CESTAT NEW DELHI have held that there is no legal authority to levy and collect central excise duty customs duty or service tax for goods or services supplied for authorised operations of SEZ developers and units covered by Section 26 of the SEZ Act 2005. Without such legal authority no tax or duty can be either levied or collected in view of Article 265 of Constitution of India 1950. Therefore the Tribunal have held that there is no need for exemption notifications under Central Excise Act 1944 Customs Act 1962 and Finance Act 1994 nor is it necessary to fulfil of conditions under exemption notifications if any issued. Tribunal in the case of Eclerx Services Ltd. 2022 (9) TMI 166 - CESTAT MUMBAI have held that SEZ unit was eligible for exemption from service tax on services received by it and in view of the overriding effect of SEZ law denial of exemption on the grounds of procedural infirmities is not sustainable. Conclusion - The exemption benefits extended to taxable services provided to SEZ under Section 26 of the Special Economic Zones Act 2005 cannot be denied on the ground that certain procedures have not been followed or certain conditions prescribed in the notification have not been fulfilled. The impugned order is liable to be set aside to the extent it had confirmed the adjudged demands proposed in the SCNs - Appeal allowed.
Issues Presented and Considered
The core legal questions examined by the Tribunal in this appeal are:
Issue-wise Detailed Analysis 1. Eligibility for Service Tax Exemption under SEZ Act, 2005 Legal Framework and Precedents: Section 26(1) of the SEZ Act, 2005 grants every Developer and entrepreneur exemption from service tax under Chapter V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on authorised operations in a SEZ. Section 26(2) empowers the Central Government to prescribe the manner and terms subject to which such exemptions are granted, which has been done through SEZ Rules, 2006 (notably Rules 22 and 31). Section 51 of the SEZ Act provides that its provisions shall have overriding effect notwithstanding anything inconsistent in any other law. Precedents include the decision of the Andhra Pradesh High Court in the case involving GMR Aerospace Engineering Ltd., upheld by the Supreme Court, which clarified that exemptions under Section 26 of the SEZ Act are not subject to conditions in notifications under the Finance Act or other enactments, and procedural requirements under such notifications (e.g., filing of Forms A-1 and A-2) are not mandatory under the SEZ Act regime. Court's Interpretation and Reasoning: The Tribunal examined the statutory language and found that the SEZ Act is a special legislation with a non obstante clause (Section 51) that overrides inconsistent provisions of other laws, including the Finance Act. The term "prescribed" in Section 26(2) is defined under Section 2(w) of the SEZ Act to mean rules made under the SEZ Act itself, not conditions in notifications under other statutes. The Tribunal relied on the High Court and Supreme Court decisions to hold that the exemption under Section 26(1)(e) is a standalone exemption, independent of the Finance Act notifications and their conditions. The procedural requirements in the Finance Act notifications cannot be imposed to deny exemption where the SEZ Act and Rules' conditions are met. Key Evidence and Findings: The appellants had registered under the service tax laws and claimed exemption under the SEZ Act. The Department contended that they failed to produce requisite Forms A-1 and A-2 and did not comply with conditions in exemption notifications issued under the Finance Act. The adjudicating authority confirmed partial demand on this basis. Application of Law to Facts: The Tribunal found that the appellants' entitlement to exemption under Section 26 of the SEZ Act cannot be denied on grounds of non-compliance with procedural conditions in Finance Act notifications. The SEZ Rules (Rule 22 and 31) govern the manner and conditions for exemption, and the appellants complied with these. Therefore, the demand confirmed on procedural lapses under Finance Act notifications is unsustainable. Treatment of Competing Arguments: The Revenue argued that exemption is subject to strict compliance with conditions in notifications under the Finance Act, including submission of specific forms and approvals, and relied on the Supreme Court decision in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar & Co. for strict interpretation of exemption notifications. The Tribunal distinguished this case on facts, noting no ambiguity in the SEZ Act exemption and that the SEZ Act overrides inconsistent provisions. Conclusion: The appellants are eligible for exemption under Section 26 of the SEZ Act, and procedural non-compliance with Finance Act notifications cannot be a ground for denial. 2. Overriding Effect of SEZ Act over Finance Act and Related Notifications Legal Framework and Precedents: Section 51 of the SEZ Act explicitly provides that its provisions shall have effect notwithstanding anything inconsistent in any other law. The Finance Act, 1994 is a general law imposing service tax, while the SEZ Act is a special legislation enacted later. The principle of lex specialis derogat legi generali applies. The Tribunal relied on the decision of the Andhra Pradesh High Court in GMR Aerospace Engineering Ltd. and the Supreme Court's dismissal of the Special Leave Petition against it, affirming that the SEZ Act's exemption provisions override inconsistent provisions of the Finance Act and related notifications. Court's Interpretation and Reasoning: The Tribunal observed that the Finance Act notifications issued under Section 93 are general exemption powers available to all taxpayers, whereas Section 26 of the SEZ Act is a special exemption specifically for SEZ developers and units. The SEZ Act's overriding clause (Section 51) means that the charging provisions of the Finance Act (Section 66 and related) do not apply to services provided to SEZ developers or units for authorized operations. Therefore, there is no legal authority to levy or collect service tax on such services, and exemption notifications under the Finance Act are redundant in this context. Key Evidence and Findings: The Tribunal noted the Department's reliance on Finance Act notifications and procedural conditions, but found these irrelevant due to the overriding effect of the SEZ Act. Application of Law to Facts: The Tribunal applied the overriding effect principle to hold that the appellants' services to SEZ developers or units are exempt from service tax by operation of law under the SEZ Act, without need to satisfy conditions in Finance Act notifications. Treatment of Competing Arguments: The Revenue's argument that exemption must comply with Finance Act notifications was rejected based on the statutory scheme and judicial precedents. Conclusion: The SEZ Act's exemption provisions override the Finance Act and its notifications; thus, service tax cannot be levied on services provided to SEZ developers or units for authorized operations. 3. Procedural Requirements and Conditions under Finance Act Notifications Legal Framework and Precedents: Various notifications under Section 93 of the Finance Act prescribe conditions such as submission of Form A-1, A-2, and approval lists under SEZ Rules for claiming exemption. The Department contended that failure to comply with these conditions disentitles the appellants from exemption. However, the Tribunal relied on the GMR Aerospace Engineering Ltd. decision and others, including Eclerx Services Ltd., where it was held that procedural lapses under Finance Act notifications cannot override substantive exemption under the SEZ Act. Court's Interpretation and Reasoning: The Tribunal emphasized that the SEZ Act and Rules prescribe the manner and conditions for exemption, and procedural requirements in Finance Act notifications are not incorporated into the SEZ Act's regime. Procedural non-compliance cannot be a ground to deny exemption when substantive eligibility exists under the SEZ Act. Key Evidence and Findings: The appellants failed to produce certain forms and approvals as per Finance Act notifications. The adjudicating authority confirmed demand on this basis. Application of Law to Facts: The Tribunal found that these procedural lapses do not affect the substantive right to exemption under the SEZ Act, which has overriding effect. The appellants' entitlement under SEZ Act and Rules stands unaffected. Treatment of Competing Arguments: The Revenue's reliance on the Supreme Court decision in Dilip Kumar & Co. for strict compliance with exemption notification conditions was found inapplicable as the issue here is not ambiguity in exemption but the overriding nature of the SEZ Act. Conclusion: Procedural requirements under Finance Act notifications are not mandatory for exemption under SEZ Act; non-compliance cannot justify denial of exemption. 4. Sustainability of Service Tax Demand Confirmed by Adjudicating Authority Legal Framework and Precedents: The demand was confirmed under Section 73(2) of the Finance Act for non-payment of service tax, along with penalties under Sections 77 and 78. The Tribunal noted the constitutional principle under Article 265 that taxes can be levied only by authority of law. Since Section 26 of the SEZ Act exempts service tax on services to SEZ developers or units, and this provision overrides charging provisions of the Finance Act, there is no legal authority to levy service tax on such services. Precedents include the Tribunal's decision in Cummins Turbo Technology, which held that no tax or duty can be levied on goods or services supplied for authorized operations of SEZ developers and units covered by Section 26 of the SEZ Act. Court's Interpretation and Reasoning: The Tribunal held that since the charging sections of the Finance Act are overridden by the SEZ Act, no valid demand for service tax can be sustained. Consequently, penalties and interest based on such demand are also unsustainable. Key Evidence and Findings: The adjudicating authority confirmed demand partly based on non-fulfillment of procedural conditions. The Tribunal found this reasoning flawed as the substantive exemption under SEZ Act was not considered correctly. Application of Law to Facts: The Tribunal set aside the confirmed demand, interest, and penalties, holding that the appellants were entitled to exemption under the SEZ Act, and no service tax was payable. Treatment of Competing Arguments: The Revenue's arguments on procedural non-compliance and strict interpretation of exemption notifications were rejected in light of overriding statutory provisions and judicial precedents. Conclusion: The service tax demand confirmed by the adjudicating authority is not sustainable and is set aside. Significant Holdings "The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act." (Section 51, SEZ Act, 2005) "Section 26(1) of the SEZ Act made the entitlement to certain exemptions subject to provisions of sub-section (2) of Section 26. Section 26(1) did not make the entitlement of a Developer to certain exemptions, subject to the provisions of something else other than the provisions of sub-section (2). Therefore, the 5th respondent cannot read Section 26(1) to mean that the exemptions listed therein are (1) subject to the provisions of sub-section (2) of Section 26, and (2) also subject to the terms and conditions prescribed in the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Tariff Act, 1985 and the Finance Act, 1994." (GMR Aerospace Engineering Ltd. decision) "The charging sections, having been overridden by the SEZ Act, no legal authority to levy and collect central excise duty, customs duty or service tax for goods or services supplied for authorised operations of SEZ developers and units covered by Section 26 remains. Without such a legal authority, no tax or duty can be either levied or collected in view of Article 265 of the Constitution of India." (Tribunal in Cummins Turbo Technology) "Procedural infirmities, for a shorter or longer time, does not in any way supplant the exemption accorded to the impugned supply of services." (Tribunal in Eclerx Services Ltd.) "The benefit of exemptions granted under the notifications issued under Section 93 of the Finance Act, 1994, are available to anyone and not necessarily confined to a unit in a special economic zone. Section 93 of the Finance Act, in that sense, is a general power of exemption available in respect of all taxable services. But, Section 26(1) is a special power of exemption under a special enactment dealing with a unit in a special economic zone. Therefore, the notifications issued under Section 93 of the Finance Act, 1994 cannot be pressed into service for finding out whether a unit in a SEZ qualifies for exemption or not." (GMR Aerospace Engineering Ltd.) Final Determinations:
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