Question of applicability of Exemption Notification relates directly and proximately to duty rate

Question of applicability of Exemption Notification relates directly and proximately to the rate of duty, Appeal not maintainable before High Court by virtue of Section 35G(1) of Central Excise Act, 1944

Brief facts of the case   

The assessee, a unit in the SEZ, was engaged in providing information technology, spot services and business process outsourcing services. For rendering these output services they receive various input services such as CHA services, management consultancy services, business support services, manpower recruitment services etc. All these services are duly approved by the Development Commissioner, SEZ, as eligible input services. In respect of these input services, the assessee claimed refund of service tax paid thereon under Notification No.9/2009-ST dated 3rd March, 2009, as amended by Notification No.15/2009-ST dated 20th May, 2009, during the period October, 2009 to February, 2011. The Department was of the view that this Notification provided for refund of service tax paid on input services except for services consumed wholly within the SEZ, when used for authorized operations in SEZ. Services wholly consumed within the SEZ are not taxable. The services consumed within the SEZ are exempt from tax. Hence, no refund can be claimed on such exempt input services under the Notifications. Therefore, the claims for refund were rejected. The matter was carried to the Tribunal and after hearing both sides, the Tribunal relied upon an order passed by it in the case of Tata Consultancy Services Limited and Wardha Power Company. According to the Tribunal in case of services which are wholly consumed within the SEZ required no discharge of the service tax liability abinitio. That, according to it, does not mean that where service tax liability has been discharged, the assessees would not be permitted to seek refund under section 11B of the Act. If the appellant is eligible for refund under section 11B then the same cannot be denied on the ground that the claim was made under Notification No.9/2009-ST. Further, Tribunal held that services provided to SEZ or units in the SEZ are deemed as export. It is the avowed policy objective of the Government of India that exports should not bear the burden of taxes. If this policy objective has to be sub-served and the objective realized, broader view of the provisions relating to refund has to be taken. Therefore, even if the appellants were not eligible for refund under Notification No.9/2009-ST, the appellants were clearly eligible for refund under section 11B of the Central Excise Act, 1944. Therefore, the rejection of service tax refund is not sustainable in law. In the present appeal, revenue questioned the order passed by the Customs, Excise and Service Tax Appellate Tribunal.

Question of Law There are two questions of law which are deemed as substantial questions of law.

(i) Whether CESTAT was right in holding that refund of Service Tax was available to the assessee under Section 11B of the Central Excise Act, 1944, when the claim was actually filed under NN 9/2009-ST or under NN 15/2009-ST.

(ii) Whether CESTAT was right in holding that the assessee was eligible for refund at all, when the Notification No.15/2009-ST (which amended Notification No.9/2009-ST) specifically provided that if services are wholly consumed in the SEZ, then the same would be exempted from payment of service tax ?

Contention/Objection of Assessee

Learned counsel appearing on behalf of the assessee-respondent raised a preliminary objection to the maintainability of these appeals in the High Court and submitted that the Revenue will have to approach the Hon’ble Supreme Court meaning thereby the remedy of the Revenue to challenge the impugned order of the Tribunal would be by way of appeal to the Hon’ble Supreme Court of India. He submitted that the words “having a relation to the rate of duty of excise” appearing in the bracketed portion of sub-section (1) of section 35-G would take their colour from a reading of the explanation to section 35-E of the Central Excise Act, 1944. In any event, they must be interpreted in the light of the law pronounced by the Hon’ble Supreme Court in the case of Navin Chemicals Manufacturing & Trading Company Limited vs. Collector of Customs, 1993 (68) Excise Law Times, Pg. 3. This very issue has a relation to the rate of duty and, therefore, cannot be determined by this Court.

Contention of the Revenue

Contesting this position the ld. counsel of appellant-Revenue submitted that the only question which arises in these appeals are whether the West Zonal Bench of the Tribunal was right in holding that the refund of service tax was available to the assessee under section 11B of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994, when the claim was actually filed under Notification No.9/2009- ST or under Notification No.15/2009-ST. This is not a question having any relation to the rate of duty. The only issue would be whether the regime of refund under the Central Excise Act, 1944, is available to claim refund of service tax. The second would be as to whether the services consumed within the SEZ can be said to be forming part of the Notifications. This has no relation to the rate of duty of excise. Therefore, none of the judgments relied upon nor the provisions would apply. The preliminary objection, therefore, must be answered in favour of the Revenue and against the assessee. If the services which have been provided or used / wholly consumed within the SEZ are not taxable then the claim for refund could not have been entertained at all.

Held by High Court

The language of section 35-G particularly the words “having a relation to the rate of duty of excise” would, therefore, have a definite bearing on the present case. So long as there is an issue as to whether the services consumed within the SEZ are exempt or taxable, then, the same would be having a relation to the rate of duty. In Navin Chemicals Manufacturing and Trading, Hon’ble Supreme court construes the similar provision and having a similar language as section 35-G of the Central Excise Act, 1944, but appearing in the Customs Act, 1962. Interpreting that provision and with the aid of the explanation it was held that questions relating to the rate of duty and to the value of goods for purpose of assessment are questions that squarely fall within the meaning of the said expression. The dispute as to classification of goods and as to whether or not they are covered by exemption Notification relates directly and proximately to the rate of duty applicable thereto for the purposes of assessment. That explanation 35-E(5) of the Central Excise Act, 1944 is an explanation for the purpose of sub-section (5) of section 35-E. Clause (c) of this explanation reveals as to how it covers a case of the goods being excisable at all or whether the rate of duty of excise on any goods is nil. This clause is an aid or guide with the assistance of which it can be decided as to whether any question has a relation to the rate of duty of excise as appearing in section 35-G(1) of the Central Excise Act, 1944. In construing these words the assistance of the explanation was taken in terms of the law laid down by the Hon’ble Supreme Court in Navin Chemicals. As a result, the Court upheld the preliminary objection raised by the respondent-assessee and dismissed each of the appeals of the Revenue as not maintainable before the High Court. The Revenue shall have to take recourse to the relevant provisions of law so as to enable them to impugne and challenge the orders of the Tribunal.