Case Law Details
Harman Connected Services Corporation India Pvt. Ltd. Vs Commissioner of Central Tax (CESTAT Bangalore)
Background of the Appeal
The appeal before CESTAT Bangalore challenged the order of the Commissioner (Appeals) dated 05.08.2020, which rejected the appellant’s refund claim on the ground that the conditions prescribed under Notification No. 12/2013-ST dated 01.07.2013 had not been fulfilled. The appellant, a provider of Information Technology Software Services, had filed a refund claim of Rs. 62,69,973 for the period October 2015 to December 2015 towards service tax paid on specified input services used for authorised operations in its SEZ unit. The Assistant Commissioner sanctioned Rs. 50,55,989 but rejected Rs. 12,13,983, holding that certain services were not included in the Approved List issued by the Development Commissioner of the SEZ. The Commissioner (Appeals) upheld this rejection, leading to the present appeal.
Appellant’s Contentions
The appellant contended that the impugned order failed to properly appreciate the provisions of the SEZ Act and the definition of input services. It argued that Business Auxiliary Services and Management and Business Consultancy Services were used for exporting taxable output services and for authorised operations within the SEZ. According to the appellant, the mere omission of these services from the Approved List issued by the Development Commissioner could not establish that they were not used for authorised operations.
The appellant further submitted that the SEZ Act, 2005 overrides the provisions of the Finance Act, 1994, and that the notifications governing refund merely prescribe the procedural mechanism for claiming refund. They do not impose any restriction on the substantive entitlement to refund where services are wholly consumed for authorised SEZ operations. It was also pointed out that these services were subsequently included by the Development Commissioner in the Default List of services. The appellant relied on several Tribunal and court decisions in support of its submissions.
Tribunal’s Findings
The Tribunal observed that the sole reason for rejecting the refund was that the disputed services were not included in the Approved List or Default List issued by the Development Commissioner. At the same time, there was no dispute that the services had actually been used for authorised operations within the SEZ.
The Tribunal held that the omission of the services from the Approved List constituted only a technical defect and could not deprive the appellant of the substantive benefit of refund where the services had admittedly been utilised for authorised operations. It also noted that both disputed input services had subsequently been included in the Development Commissioner’s Default List.
Reliance on Judicial Precedents
The Tribunal relied upon several earlier decisions. It referred to Commissioner of Central Excise, Mangalore v. Mangalore SEZ Ltd., where it had been held that non-mentioning of services in the prescribed annexures is only a technical lapse and should not result in denial of refund where services are consumed within the SEZ.
The Tribunal also relied upon Intas Pharma Ltd. v. CST, which held that the notifications issued under the Finance Act merely provide the procedure for operationalising the exemption available under the SEZ Act and cannot curtail the immunity from service tax granted under Sections 7 and 26 of the SEZ Act. Similar reasoning was noted in Reliance Industries Ltd., Mahindra Engineering Service Ltd., Union of India v. Makers Malt, and Target Corporation India Pvt. Ltd., all of which recognised that procedural requirements cannot override the substantive exemption available to SEZ units or deny refund where services are used for authorised operations.
Final Decision
Following the consistent judicial precedents, the Tribunal held that the impugned order was not sustainable in law. It concluded that non-inclusion of the disputed services in the Approved List was merely a procedural lapse and could not defeat the appellant’s substantive entitlement to refund. Accordingly, the Tribunal set aside the impugned order and allowed the appeal.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The present appeal is directed against the impugned order dated 05.08.2020 passed by the Commissioner (Appeals) whereby the Commissioner (Appeals) has rejected the refund claim of the appellant primarily on the ground that the appellant has failed to fulfill the conditions of Notification No.12/2013-ST dated 01.07.2013.
2. Briefly the facts of the present case are that the appellants are registered under Service Tax for providing taxable services viz. Information Technology Software Services. The appellant had filed a refund claim on 26.09.2016 for an amount of Rs.62,69,973/- for the period October 2015 to December 2015 towards refund of service tax paid on various input services (specified services) set to have been used for authorized operations of the SEZ units during quarter in terms of Notification No. 12/2013-ST dated 01.07.2013 as amended by Notification No.07/2014-ST dated 11.07.2014, Notification No.02/2016-ST dated 03.02.2016 and Notification No.30/2016-ST dated 26.05.2016. After following the due process, the Assistant Commissioner of Central Tax vide Order-in-Original dated 23.05.2018 sanctioned the refund of Rs.50,55,989/- and rejected the refund of Rs.12,13,983/- on the ground that certain specified services were not mentioned in the Approved List issued by the Development Commissioner of SEZ. Aggrieved by the said order, the appellant filed appeal before the Commissioner who rejected the same. Hence, the present appeal.
3. Heard both the parties and perused the records of the case.
4. Learned Consultant for the appellants submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the provisions of SEZ Act and the definition of Input Service. He further submitted that the Respondent has wrongly rejected the input tax credit of Rs.12,13,983/- for the reason that the services such as “Business Auxiliary Services” and “ Management and Business Consultancy Services” are not included in the list of specified services required for authorized operations as issued by the Development Commissioner, SEZ. He further submitted that input services of “Business Auxiliary Service” and “Management and Business Consultancy Service” are required for export of taxable output services and merely because they are not mentioned in the Approved List of authorised services by the Development Commissioner, it cannot be considered that these are not used for authorized operations. He further submitted that SEZ Act 2005 overrides the Finance Act 1994 and Notification issued under the said Act. He further submitted that Notification No.17/2011-ST dated 11.03.2011, Notification No.40/2012-ST dated 20.06.2012 and Notification No.12/2013-ST dated 01.07.2013 is only a mechanism to claim the refund of service tax paid by the assessee and it cannot be inferred to have imposed any disability on the recipient of services consumed wholly within the SEZ, from seeking refund of service tax remitted on such transactions by the provider of such services. He further submitted that the only test to be carried out shall be whether these services have been used for authorized operations and it is clearly evident from the documents produced by the appellant which provides that these services are used for providing authorized services hence the refund of service tax paid on said services ought to have been granted. He further submitted that subsequently, Development Commissioner has included the specified services in the Default List of services. In support of his submissions, he relied upon the following decisions:
- Commissioner of Central Excise Mangalore Commissionerate Vs Mangalore SEZ Ltd., 2017 (49) STR 311 (Tri. Bang.) (2017-TIOL-310-CESTAT)
- Intas Pharma Ltd. Vs CST, Ahmedabad, 2013 (32) STR 543 (Tri. Ahmd.)
- Reliance Industries Ltd. Vs CCE, Mumbai-I, 2016 (41) STR 465 (Tri. Mumbai)
- Mahindra Engineering Service Ltd. Vs CCE, Pune-I, 2014-TIOL-2534-CESTAT-MUM
- Union of India Vs Makers Malt, 2017 (51) STR J132 (Raj.)
- Target Corporation India Pvt. Ltd. Vs Asst. Commissioner of Service Tax, Bangalore (OIA No. 161 to 166/2017)
5. On the other hand, learned AR reiterated the findings of the impugned order.
6. After considering the submissions of both the parties and perusal of the material on record, I find that the only ground on which refund has been rejected is that the said specified services are not included in the Default List and services approved by the Development Commissioner of SEZ. Further, I find that there is no dispute that the said services have been used by the appellant for authorized operation in the SEZ. Further, I find that not mentioning the said services in the Approved List is only a technical defect and it should not debar the substantive benefit to the assessee who has utilized those services for carrying out authorized operation. I also note that both the input services have been subsequently included by the Development Commissioner of SEZ in the List of default services. This issue has been considered by the Tribunal in number of cases and in the case of Commissioner of Central Excise Mangalore Commissionerate Vs Mangalore SEZ Ltd. cited supra, the CESTAT has held as under:
“The Government‟s intention is clear that the SEZ units should either not require to pay or if paid they are eligible for refund. Mere not mentioning the services in Annexure II & III is only a technical one which should not debar the substantial benefit. In this case, it is clear that the appellant who had availed the services inside the SEZ were not liable to pay service tax and the appellant who had paid the Service Tax for the services availed within SEZ should not be penalized for the same. Therefore, denying the eligible refund to the appellant on the ground that services availed by the appellant were not listed in the annexure II & III is not justified. Therefore, I am inclined to allow the refund in respect of the above services. The amendment to the notification No.09/2009 by Notification No.1/2009 was beneficial in nature so that the units do not have to first pay the service tax and then come forward for refund if entire services were wholly consumed witcedural prescriptions of Notification No.9/2009 or 15/2009. These Notifications are calibrated to enable recip.
6.1. Further, in the case of Intas Pharma Ltd. Vs CST, Ahmedabad cited supra CESTAT has held as under:
“On true and fair construction of Notifications 9/2009 and 15/2009 issued under Section 93(1) of the Act, considered in the light of the overarching provisions of Sections 7 and 26(e) of the 2005 Act, the conclusion appears compelling that neither Notification 9/2009 nor 15/2009 disentitle immunity to Service Tax enjoined by the provisions of the 2005 Act. It therefore appears that Notification Nos. 9/2009 and 15/2009 merely contour the process by which the benefit of exemption/immunity to tax is operationalised. Notification Nos. 9/2009 and 15/2009 have provided a facilitative regime whereby a developer or units of SEZ, as recipients of taxable service are enabled the facility of claiming refund of Service Tax, remitted by taxable service providers in relation to the taxable services provided to a unit in a SEZ. On this harmonious construction, the immunity to Service Tax provided under Section 7 or 26 of the 2005 Act cannot be so interpreted as to be eclipsed the procedural prescriptions of Notification No. 9/2009 or 15/2009. These Notifications are calibrated to enable recipients of taxable services (exempt from liability to tax under the provisions of the 2005 Act), to claim refund of the Service Tax, wherever assessed and collected by Revenue or remitted otherwise by the taxable service provider, inadvertently. Considered in the light of this analysis, the substituted provisions, of clause/sub-paragraph „c‟ of Notification No. 15/2009 cannot be inferred to have imposed any disability on the recipient of services consumed wholly within the SEZ, from seeking refund of Service Tax remitted on such transactions, by the providers of such services.”
6.2. The same analogy of Intas Pharma has been followed by the CESTAT Mumbai in the case of Reliance Industries Ltd. Vs CCE, Mumbai-I, cited supra. Further, in the case of Mahindra Engineering Service Ltd. Vs CCE, Pune-I cited supra, CESTAT Mumbai has held as under:
“It is also noted that the SEZ Act, clearly provides under Section 50(1) that it will have overriding effect over the provisions of any other law. As both the SEZ Act and Service Tax Act, have been passed by Parliament, the provisions of Section 51 have to be given effect to. The reliance placed on the DHL Logistic Pvt. Ltd. (supra) by the A.R. relates to exemption notification No.4/2004 which did not incorporate the refund mechanism. On the other hand, in the case of Intas Pharma Ltd. Vs CST reported in 2013 (32) STR 543 (Tri. Ahmd.)=2013-TIOL-1091-CESTAT-AHM, it was held that provisions of SEZ Act have overriding effect. Therefore, there appears to be no reason to deny the refund claim.”
6.3. Further, in the case of Union of India Vs Makers Malt cited supra, CESTAT has held as under:
“In view of provisions of SEZ Act, 2005, services supplied to SEZ are immune from Service Tax and conditions of notification granting exemption by way of refund cannot override this immunity. Thus refund cannot be denied on ground of non-filing of authorised list of operations.”
6.4. Further, in the case of Target Corporation India Pvt. Ltd. Vs Asst. Commissioner of Service Tax, Bangalore cited supra, Learned Commissioner has held has under:
“Non-inclusion of said services in the list can be viewed as a procedural lapse since the adjudicating authority has clearly stated in the order that apart from the above said criteria, the claims on the said services suffer no other infirmity.”
7. In view of various decisions cited supra squarely covering the issue in favour of the appellant, I hold that the impugned order is not sustainable in law and in view of ratio of various decisions cited supra, I set aside the impugned order by allowing the appeal of the appellant.
(Order pronounced in the open court on 24/03/2021)
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