Case Law Details
Inox India P Ltd. Vs C.C.E.-Kutch (Gandhidham) (CESTAT Ahmedabad)
The recent judgment by the CESTAT Ahmedabad in the case of Inox India P Ltd. vs Com-missioner of Central Excise highlights the exemption of service tax for operations conducted with in Special Economic Zones (SEZ). The CESTAT, Ahmedabad held that once the legislature by way of an enactment has provided certain exemptions, any notification issued under any other enactment will not take away the right of the exemption from payment of the Service Tax to the Appellant for the activity while falls under category of the authorized operations within a SEZ. Thus, services received from abroad shall remain exempted as per Notification No. 15 of 2009-ST dated May 20, 2009, and the demand raised against the Appellant is without any merit.
Facts:
M/s. Inox India Ltd. (“the Appellant”) was registered with the Service Tax Department for various services. During the course of the audit of the financial records of the Appellant, it was observed by the Department that during 2009-2010 and 2010-2011, the Appellant had paid an amount of Rs. 1,46,35,090/- as commission towards sales promotion commission on export sales to their foreign agents located outside India. The services rendered by the foreign based agents to the Appellant were considered taxable by the Department under the category of ‘Business Auxiliary Services’ as provided under the Section 65(105) (zzb) of the Finance Act, 1994 (“the Finance Act”) read with the Section 66A of the Finance Act and the Taxation of Services (provided from outside India and received in India) Rules, 2006.
As per the provisions of the Finance Act, any services specified in Section 65(105) of the Finance Act are provided by the person who has a business or an establishment or a place of residence in a country other than India and has received by a person who has a business or an establishment or a place of resident of India, in that case, such service shall be taxable service and such service shall be treated as if the recipient himself has provided such services in India.
Therefore, the Department issued a Show Cause Notice dated September 19, 2014 (“the Impugned SCN”) where Service Tax of Rs. 15,07,415/- was demanded under the provisions of Section 73 (1) of the Finance Act. The Impugned SCN invoked penal provisions as well as a provision for charging interest as per Section 75 of the Finance Act.
The matter got adjudicated vide Order-In-Original dated March 31, 2015 (“the Impugned Order”) where all the charges as invoked in the Impugned SCN were confirmed by the Learned Adjudicating Authority. The Appellant approached the Office of the Commissioner (Appeal), however the Commissioner (Appeal) vide Order-In-Appeal dated December 01, 2015 (“the Impugned Order”) rejected the appeal of the Appellant and against the same.
Hence, aggrieved by the Impugned Order, the present appeal was filed before the CESTAT.
Issue:
Whether the services received from abroad are exempt from the Service Tax?
Held:
The CESTAT, Ahmedabad in Service Tax Appeal No. 10341 of 2016-DB held as under:
- Observed that, the unit of the SEZ was entitled for a refund of the Service Tax paid for authorized operations. As per Notification No. 9/2009-ST dated March 03, 2009 as amended by the Notification No. 15 of 2009-ST dated May 20, 2009 (“the Exemption Notification”) a complete exemption has been provided from payment of service tax for authorized operations conducted within SEZ. Since the services have been availed by the Appellant from outside India within SEZ. Therefore, barring a brief period of two months for the majority of the period the services availed from foreign based agent for the promotion of the sales was falling under the exempted category as the services received were in the SEZ unit.
- Noted that, the substantive benefit of the service tax exemption provided under Section 26 of the Special Economic Zone Act, 2005 (“the SEZ Act”) and Rule 31 of the Special Economic Zone Rules, 2005 (“the SEZ Rules”) cannot be denied only on procedure requirement the Exemption Notification. Once the legislature by way of an enactment has provided certain exemptions, any notification issued under any other enactment will not take away the right of the exemption from payment of the Service Tax to the Appellant for the activity while falls under the category of the authorized operations within a SEZ. Therefore, services received from abroad shall remain exempted and the demand raised against the Appellant is without any merit.
- Relied on, Tribunal’s decision in case of SRF Limited v. Commissioner of Customs, Central Excise and Service Tax LTU New Delhi reported under 2022 (64) GSTL 489 Tribu-nal-Delhi, held that the charge of excise duty under Section 3 of the Central Excise Act, the charge of Customs Duty under Section 12 of the Customs Act and the charge of service tax under Sections 66, 66A and 66B of the Finance Act, will not apply to goods and services supplied to developers and units for authorized operations in the SEZ areas by virtue of the over riding provisions of the SEZ Act. Any exemption notifications and conditions therein are therefore, redundant because, the Parliament itself has through Section 51 of the SEZ Act, overridden the charge in the other laws.
- Noted that, the SCN has been issued by the Department is invoking the extended time proviso under Section 73(1) of the Finance Act as the Impugned SCN was issued on September 19, 2014 for the period April 2009 to March 2011. Hence, all the transactions of foreign exchange payments were reflected in their books of account and by taking necessary permission from the Reserve Bank of India. The elements for invoking the extended time period such as fraud, collusion, misstatement and suppression of facts with an intent to evade duty are absent in this case and therefore, the demand is time barred and same also deserves to be dropped on the grounds of limitation.
- Held that, the Impugned Order in appeal is without merit. Hence, it was set aside and the appeal was allowed.
Conclusion: The judgment by CESTAT Ahmedabad in the case of Inox India P Ltd. vs Commissioner of Central Excise reaffirms the exemption of service tax for operations conducted within SEZ units. This decision underscores the legislative intent to promote economic activities within SEZs by providing tax benefits, ensuring clarity and consistency in taxation policies within these designated areas.
FULL TEXT OF THE CESTAT AHMEDABAD OR-DER
The facts in brief are that the appellant are registered with the Service Tax department for various services. During the course of the audit of the financial records of the appellant, it was observed by the department that during 2009-2010 and 2010-2011. The appellant had paid an amount of Rs. 1,46,35,090/- as commission towards sales promotion commission on export sales to their foreign agents situated located outside India. The services rendered by the foreign based agents to the appellant were considered as taxable by the department under the category of BUSINESS AUXILIARY SERVICE as provided under Section 65(105)(zzb) of the Finance Act, 1994 read with Section 66A and taxation of services (provided from outside India and received in India) Rules , 2006. It has been provided under the Provisions of Finance Act, 1994 that any services specified in Section 65(105) of the Finance Act are provided by person who has business or establishment or place of resident in a country other than India and received by a person who has business or establishment or place of resident of India, in that case such service shall be taxable service and such service shall be treated as if the recipient himself has provided such services in India. On the basis of above views. The department issued a show cause notice dated 19.09.2014 where under Service Tax of Rs. 15,07,415/- was demanded under the provisions of Section 73 (1) of the Finance Act, 1994. The SCN also invoked penal provisions as well as provision for charging interest as per the Section 75 of the Act.
1.1. The matter got adjudicated vide impugned Order-In-Original dated 31.03.2015 where under all the charges as invoked in the show cause notice have been confirmed by the learned Adjudicating Authority. The appellant approached the office of Commissioner (Appeal), however the Commissioner (Appeal) vide impugned Order-In-Appeal dated 01.12.2015 rejected the appeal of the appellant and against the same they are before us.
2. The learned Advocate appearing for the appellant submitted that the appellant is located in Kandala Special Economic Zone (SEZ) and are registered with Serviced Tax department for receiving various services such as business consultancy service, consulting engineer service, business auxiliary services, legal consultancy services, transport of goods by road services etc. It has been mentioned by the learned Advocate that certain payment have been made by the appellant as sales commission on export of the goods outside India to foreign based agents for promoting their sales outside India. It has further been mentioned that the department has confirmed Services Tax under Business Auxiliary Service under reverse charge mechanism basis as provided under Section 66A of the Finance Act, 1994.
2.1. It has been contention of the learned Advocate that as per the provisions of Notification No. 9/2009-ST dated March 03, 2009 and vide Notification No. 15 of 2009-ST dated May 20, 2009. The Government of India has provided exemption from the Service Tax if the services are consumed in SEZ unit or if any SEZ unit avails services outside SEZ, the Service Tax so paid is refundable. Therefore, it is wrong on the part of the department to demand Service Tax under reverse charge mechanism basis for the services rendered by sales agents located abroad to a SEZ unit and for the purpose of export of goods. As the services related to export of goods manufactured in SEZ unites and therefore, the services rendered by foreign based commission agent and availed by the appellant have been consumed in a SEZ unit only and therefore, as per the provisions of exemption Notification No. 9/2009-ST dated March 03, 2009and Notification No. 15 of 2009-ST dated May 20, 2009 no Service Tax is payable on such services. The learned Advocate has relied upon various decisions of Tribunal as well as High Court of Gujarat special in case of M/s. SRF Limited vs. Commissioner Of Custom and Central Excise LTE New Delhi reported under 2022(64) GSTL 489 Tribunal Delhi and Hon’ble Gujarat High Court decision in case of Commissioner Of Central Excise Ahmedabad-II vs. Cadila Health Care Limited reported under 2013(30) STR 3 Gujarat. Central Excise Service Tax Vs. Patel Alloy Steel Pvt Ltd reported under 2014 (305) ELT 476 Gujarat as well as this Tribunal decision in case of Commissioner Central Excise, Ahmedabad iii Vs. Reclamation Welding Limited reported in 2014 (308) ELT 542 Tribunal Ahmedabad as well as M/s. Alambac Limited vs. Commissioner Of Central Excise Vadodara reported under 2014(308) ELT 535 Tribunal-Ahmedabad.
2. 2. The learned Advocate has also emphasize that the SEZ Act over rides all other prevailing acts including Finance Act, 1994 and as SEZ Acts exempts all the taxes for the units working in SEZ unit and therefore by virtue of SEZ Act no tax is payable on the services received by the appellant from the abroad.
2.3. The learned Advocate has also contended that the show cause notice dated 19.09.2014 has been issued for the period April, 2009 to March 2011 invoking extended time proviso under Section 73(1) of the Finance Act , 1994. It has been submitted that it was unjustified for the department to invoke the extended time proviso in their case as no element of any misstatement, collusion, suppression of facts with an intend to evade duty is present in their case. It was purely on the basis of record which have been submitted by them to the audit party that the technical issue has been made out by the department for demanding Service Tax under Business Auxiliary Service. The learned Advocate cited the Hon’ble Supreme Court decision in case of Ms. Nizam Sugar Factory vs. CCE reported under the 2006 (197) ELT 465 Supreme Court to emphasize their arguments on this issue..
3. We have also heard Shri A R Kanani, Superintendent (AR) reiterated the findings as given in the impugned Order In Appeal.
4. We have heard both the sides and we find that by virtue of Notification No. 9/2009-ST dated March 03, 2009, it has been provided that the developers or unit of Special Economic Zone shall be exempted from payment of Service Tax by way of refund of Service Tax paid on the specified services used in relation to authorized operations in the Special Economic Zone. Thus, it is clear that unit of the Special Economic Zone was entitled for refund of the Service Tax paid by them for authorized operations. This exemption notification dated 03.03.2009 was amended within a short period on 20.05.2009 by Notification No. 15 of 2009-ST dated May 20, 2009 by the virtue of this amendment a complete exemption has been provided from payment of service tax for authorized operations conducted within Special Economic Zone area. We are of the opinion that since the services have been availed by the appellant from outside India within Special Economic Zone and therefore, barring brief period of two months for the majority of period the services availed by them from foreign based agent for the promotion of the sales was falling under the exempted category as the services received by them were in the Special Economic Zone unit.
4.1. We also find force in the argument of the learned Advocate that the substantive benefit of the service tax exemption provided under Section 26 of the Special Economic Zone Act and Rule 31 of the Special Economic Zone Rules cannot be denied only on procedure requirement under Notification No. 9/2009 dated 03.03.2009 as amended by Notification No. 15 of 2009-ST dated May 20, 2009. Before proceeding further in this regard it will be relevant to have glance at the provision of Section 26 of Special Economic Zone Act.
“ 26. (1) Subject to the provisions of subsection (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely :- (
a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India
(c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;
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(e) exemption from service tax under Chapter V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone”
From the reading of the above Section 26(1) (e) of the Special Economic Zone Act , 2005. We find that a substantive benefit of Service Tax exemption has been provided under the above Section 26 of the Special Economic Zone Act. Once the legislature by way of enactment has provided certain exemption we feel that any notification issued under any other enactment will not take away the right of the exemption from payment of the Service Tax to the appellant for the activity while falls under category of the authorized operations within a Special Economic Zone.
4.2. In this regards we also rely upon this Tribunal’s decision in case of SRF Limited Vs. Commissioner of Customs, Central Excise and Service Tax LTU New Delhi reported under 2022 (64) GSTL 489 Tribunal Delhi.
“36. Special Economic Zones created under the SEZ Act are on a different footing because the SEZ Act itself exempts goods and services supplied for authorised operations to developers and units in the SEZs from the Customs Duty, Central Excise Duty and Service Tax. The provisions of SEZ Act prevail over any other law, Section 26(1) of the SEZ Act, 2005 reads as follows:
26. (1) Subject to the provisions of subsection (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely:-
(a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorized operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India:
(c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorized operations by the Developer or entrepreneur;
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(e) exemption from service tax under Chapter V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorized operations in a Special Economic Zone
37. Thus, Section 26(1) of the SEZ Act is inconsistent with the three charging sections viz., Section 3 of the Central Excise Act, 1944, Section 12 of the Customs Act, 1962 and Sections 66, 66A and 66B of Chapter V of the Finance Act, 1994. In addition to the general principle of a specific law (pertaining to SEZ) prevailing over the general law (levying customs, central excise or service tax) and the later enactment (such SEZ Act, 2005) prevailing over the earlier enactments (Central Excise Act, 1944, Customs Act, 1962 and Finance Act, 1994), in the SEZ Act, the Parliament has explicitly resolved this inconsistency between the laws. Section 51 of the SEZ Act states that the provisions of SEZ Act override any other provisions of other laws. It reads as follows:
51.(1) 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.
38. Thus, insofar as supplies for authorised operations of SEZ developers and units are concerned, Section 26 of the SEZ Act overrides the charging sections in all the three Acts. Section in all three Acts.
39. The charging sections, having been overridden by the SEZ Act passed by the Parliament, 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.
40. Therefore, there is no need for any exemption notifications under any of these three Acts nor is it necessary to fulfil any conditions of any of the conditions laid down in exemption notifications, if any, issued for the purpose. Thus, the charge of excise duty under Section 3 of the Central Excise Act, the charge of Customs Duty under Section 12 of the Customs Act and the charge of service tax under Sections 66, 66A and 66B of the Finance Act, 1994 will not apply to goods and services supplied to developers and units for authorized operations in the SEZ areas by virtue of the overriding provisions of the SEZ Act. Any exemption notifications and conditions therein are therefore, redundant because, the Parliament itself has through Section 51 of the SEZ Act, overridden the charge in the other laws.
4.3. In view of above we are of the view that the services received by the appellant from their foreign based agents who were engaged in promotion of sales abroad though chargeable to Service Tax under category of Business Auxiliary Service under reverse charge mechanism basis by virtue of exemption Notification No. 9/2009-ST dated March 03, 2009 as amended by Notification No. 15 of 2009-ST dated May 20, 2009 and by general exemption for Special Economic Zone units provided under Section 26 of the Special Economic Zone Act, 2005, we hold that the services received from abroad shall remain exempted and therefore, we hold that the demand raised against the appellant is without any merit.
5. We also have taken note of the fact that the show cause notice has been issued by the department invoking extended time proviso under Section 73(1) of Finance Act, 1994 as the show cause notice was issued on 19.09.2014 for the period April 2009 to March 2011. In this regard we feel that all the transactions of foreign exchange payment were reflected in their books of account and the by taking necessary permission from the Reserve Bank of India. In view of this we are of the view that the elements for invoking extended time period such as fraud, collusion, misstatement and suppression of facts with an intent to evade duty are absent in this case and therefore we hold that demand is time barred and same also deserved to be dropped on the grounds of limitation.
6. In view of entire above discussion we hold that impugned order in appeal is without any merit and therefore, we set aside the same. Accordingly, appeal is allowed.
(Pronounced in the open court on 07/03/2024 )
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