CESTAT Kolkata Quashes Service Tax Demands on SEZ Exemption and Limitation

M.K. Enterprises Vs Commissioner (CESTAT Kolkata)

Summary:The appeal concerned service tax demands arising from an audit of M/s. M.K. Enterprises for the period from October 2009 to 2013-14. The appellant was engaged in erection, commissioning and installation services and was registered with the Service Tax Department. The adjudicating authority had confirmed multiple demands, including Service Tax of Rs. 3,67,57,078/- under Section 73(2) of the Finance Act, 1994, irregular CENVAT credit of Rs. 9,87,523/-, further Service Tax demands of Rs. 47,447/- and Rs. 7,88,890/-, interest of Rs. 31,66,003/-, late fine of Rs. 20,100/- and penalties under Sections 77 and 78 of the Finance Act, 1994 and the CENVAT Credit Rules, 2004. Before the Tribunal, the appellant contested the demands on merits and limitation. In relation to erection, commissioning and installation services rendered as a sub-contractor for work connected with an SEZ, the Tribunal held that the exemption available for services rendered in the SEZ could not be denied merely because the appellant was a sub-contractor.

The Tribunal relied upon decisions including M/s. Randhawa Construction, M/s. Anjani Excavation Operation, M/s. Shyam Engineers, Rishabh Construction Company, Sudhir Chand Jain and Commissioner of Service Tax, Mumbai-I v. M/s. FEDCO Paints and Contracts, and referred to the statutory and notification framework governing SEZ service tax exemptions. It also held that consumables used for services rendered in the SEZ did not attract Service Tax where the underlying services were exempt. In relation to services supplied to M/s. Tata Projects Ltd., the Tribunal examined the work order and held that, since the appellant supplied materials including welding electrodes, oxy/acetylene and industrial gases along with the service, the classification as works contract service and payment of Service Tax on 50% of the value was proper; the demand on 100% value under erection, commissioning and installation service was therefore unsustainable. The Tribunal further held that manpower services and supply of tangible goods services rendered within the SEZ were not leviable to Service Tax. On interest on advances, the Tribunal held that Service Tax became payable immediately after receipt of advances, but found the demand time-barred because the advances were received before 31.03.2013 and the Show Cause Notice was issued on 20.04.2015 without suppression of information.