Commissioner (A) has power to remand the matter to Adjudicating Authority

Commissioner of Central Excise & ST Vs Adani Power Limited (CESTAT Ahmedabad)

As regards the issue that whether Commissioner (Appeals) has power to remand the matter to Adjudicating Authority, we find that this being a case of refund of service tax, clearly covered by the ratio of Hon’ble Gujarat High Court judgment in the case of Associated Hotels Limited (supra). In the said judgment, the Hon’ble High Court has also referred to the judgments of Hon’ble Supreme Court in the case of Mil India Limited vs. CCE, Noida – 2007 (210) ELT 188 (SC). Therefore, we are of the view that the learned Commissioner (Appeals) has power to remand the matter to the Adjudicating Authority.

FULL TEXT OF THE CESTAT JUDGEMENT

The common issue in all these appeals is that whether the Respondent is entitled to refund as SEZ developers of specific sector namely, Power (generation of electricity) in terms of Notification No. 09/2009-ST dated 03.03.2009 and Notification No. 17/2011-ST dated 01.03.2011. The Adjudicating Authority denied the refund under the said notifications basically on the ground that Respondents supplies electricity outside the SEZ i.e. in the Domestic Tariff Area through transmission lines installed by the Respondent. Therefore, they have violated the condition 2(a) of the notification inasmuch as the services received by the Respondent were not wholly consumed in the SEZ but used for supply of electricity in the domestic tariff area. Learned Commissioner (Appeals) allowed the appeals filed by the Respondent therefore the present appeals filed by Revenue more or less on the same grounds on which the Adjudicating Authority denied the refund claim.

2. Shri S.K. Shukla, learned Superintendent (AR) appearing on behalf of the Revenue reiterates the grounds of appeal. He submits that there is no dispute in the facts of the case that though the Respondent have setup a power plant for generation of electricity in SEZ at Mundra but the electricity generated by the said power plants were supplied in the domestic tariff area, therefore, the service received by the Respondent were not wholly consumed within the SEZ. Therefore, learned Commissioner (Appeals) has wrongly allowed the appeals.

3. Shri Hardik Modh, learned Counsel appearing on behalf of the Respondents reiterates the detailed submission filed in the written submission. He further submits that the same issue under the same set of facts has been considered by this Tribunal in a bunch of appeals and the Tribunal vide order No. A/10147-10187/2016 dated 02.02.2016 held that Respondent is eligible for refund under Notification No. 17/2011-ST dated 01.03.2011. He further submits that as regards one of the grounds that Commissioner (Appeals) has no power for remanding the case to the Adjudicating Authority, he placed reliance on judgment of Hon’ble jurisdictional High Court of Gujarat in the case of Commissioner of Service Tax vs. Associated Hotels Limited – 2015 (37) STR 723 (Guj.).

4. Heard both sides and perused the record. We find that there is no dispute to the facts that the issue involved is only interpretation of Notification No. 17/2011-ST and various provisions of SEZ Act. Revenue is of the view that since the Respondent supplied the electricity generated in their power plant located in SEZ Mundra in DTA also they are not entitle for refund. We find that in the identical set of facts and also on the law point, this Tribunal in bunch of appeals filed by Revenue decided the issue vide order No. A/10147-10187/2016 dated 02.02.2016 wherein the Tribunal, after analyzing the relevant notifications, various provisions of SEZ Act and correspondence made with SEZ authorities and Ministry of Commerce and Industries, passed the following order:-

“15.    We find that there is no dispute that the assessee    fulfilled the condition of    Para 2(b) of the notification, as the assessee obtained a list of taxable services as required for authorized operation approved by the Approval Committee of the concerned SEZ. The learned Senior Advocate submits that the assessee does not own or carry out any business other than SEZ operation and furnished the declaration as per condition Para 2(c) of the notification. He has also referred to letter dated 4-10-2012 of the Specified officer of APSEZ, Mundra as quoted above, directing the assessee to file the refund claim of Service Tax in terms of Para 2(c) of the notification. Revenue is of  the view that the specified services used for authorized operation were not wholly consumed within the SEZ in terms of Explanation (iii) of Proviso to Para 2(a) of the notification. We find that as per Para 2(a) of notification, the exemption shall be provided by way of refund of Service Tax paid on the specified services received for the authorized operation in a SEZ. Proviso to Para 2(a) had given option where the specified services received and used for authorized operation are wholly consumed within the SEZ, the assessee may not pay the Service Tax. The learned Senior Advocate submits that they have not availed the option as per proviso to Para 2(a) and filed refund claim of Service Tax paid on the specified services. The contention of the Revenue is that the services were not wholly consumed within the SEZ and the refund shall be restricted as per Para 2(d) of the notification. The expression “who does not own or carry on any business other than the operations in the SEZ” in the Explanation (iii) of proviso to Para 2(a), and the expression “are not wholly consumed within SEZ, i.e., shared between authorized operation in SEZ Unit and Domestic Tariff Area (DTA) Unit” in Para 2(d), of the notification, if read harmoniously, make it clear that the expression “wholly consumed” referred to the in the Explanation, would be applicable to sharing of business between authorized operation in SEZ Unit and DTA Unit. Thus, it is required to be ascertained sharing of business of specified services between SEZ Unit and DTA Unit.

On perusal of the grounds of appeal filed by Revenue, we do not find any averment that there is a DTA unit of the assessee and therefore, Para 2(d) of notification cannot be invoked.

16. On perusal of the above correspondences, it is clear that the assessee applied for approval as Developer to set up the power sector at Village Tunda and Siracha, Taluka Mundra, District : Kutch, for the purpose of generation of power to be supplied to SEZs, EOUs in Gujarat and other SEZs, EOUs and others as permitted by the SEZ Rules. Rule 47 of the SEZ Rules as quoted above, permitted sales in DTA. Sub-rule (3) of Rule 47 of the SEZ Rules, 2006 provides surplus power generated in a SEZ may be transferred to DTA on payment of duty on consumable and raw material used for generation of power. On a query from the Bench, the learned Senior Advocate submits that they have not availed the Cenvat credit on goods used for transmission power and cables used for transmission outside SEZ. It is clear that the assessee had not availed Cenvat credit on the raw materials or consumables used in the transmission of power in DTA. The  learned Senior Advocate stated that the Ministry of Commerce vide Letter No. 6/3/2006-SEZ, dated 27.2.2009 which has been superseded by letter dated 21-3-2012 dispensed with the condition of earning net foreign exchange in the assessee’s case (generation of power within SEZ). This shows that the assessee is not required to earn foreign exchange as it would not be possible for the assessee to earn foreign exchange. Mere selling of surplus power in DTA and installing dedicated transmission lines into DTA would not mean that the assessee owns or carries on any business other than the business in SEZ.

17. There is a distinction between the expression “Sales in DTA” as referred in    Rule 47 of SEZ Rules and the words “carry on any business other than operations in SEZ” and “sharing between authorised operation in SEZ Unit and DTA Unit” as referred in Para 2(a) and 2(d) of the notification. The word “business” is one of wide amplitude and it means an activity carried on continuously and systematically by a person by application of his labour or skill with a view to earning an income. The Hon’ble Supreme Court in the case of Commissioner of Income Tax, West Bengal Kolkata National Bank Ltd. – AIR 1959 SC 928, observed that the term “business” is of wide import and each case is to be determined with reference to particular kind of activity or occupation of the concerned person. In the present case, the assessee is engaged in authorized operation in SEZ as per approval of BOA. The surplus electricity supplied in DTA as per Rule 47 of SEZ Rules, which cannot be treated as a business. There is no material available on record that the assessee has a DTA Unit, it cannot be construed that the assessee is carrying out business other than operations in SEZ. So, we do not find any merit in the grounds of appeal filed by the Revenue.

18. The “Introduction” of SEZ Act, 2006 stated that the objective of Special Economic Zones include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth. While the policy relating to the Special Economic Zones is contained in the Foreign Trade Policy, incentives and other facilities offered to the Special Economic Zone developer and units are implemented through various notifications and circulars issued by the concerned Ministries/ Departments. In the present case, notifications issued by Central Government as stated above, exempting the Service Tax on taxable services received by unit or developer of SEZ, are in consequence of Section 26 of the SEZ Act, 2005. In terms of Section 2(c) of SEZ Act, 2005 “Authorised operation” means operations which may be authorized under Section 4(2) and Section 15(a) of SEZ Act. There is no dispute that the assessee was granted Letter of Approval and authorization to operate in SEZ by BOA. Notification, dated 10-5-2007 issued by the Ministry of Commerce & Industry as quoted above, the  assessee has been granted Letter of Approval for development, operation and maintenance of the sector specific SEZ for power sector for supply of power to SEZs, EOUs in Gujarat State and other SEZs and EOUs and others at Village Tunda and Siracha, Taluka Mundra, District Kutch, State of Gujarat. So, the assessee would be entitled to supply powers to SEZs, EOUs in Gujarat State and other SEZs and EOUs and others. The learned Authorised Representative submits that the word “others” in the said notification would apply to “at Village Tunda and Siracha Taluka Mundra”. We are unable to accept the contention of the learned Authorised Representative. The expression “supply of power to Special Economic Zones (SEZs) and Export Oriented Units (EOUs) in Gujarat and other SEZs, EOUs and others” in Notification, dated 10-5-2007 would be read together and the plurality of word “Others” would indicate the other places, apart from SEZs and EOUs. The said notification notifies the area at Village Tunda and Siracha, Taluka Mundra for set up of SEZ. Thus, it is clearly evident that Ministry of Commerce and Industry had approved supply of power in DTA. It is already observed that the supply of surplus power in DTA is not the business of assessee. Rule 47 of SEZ Rules permitted to transfer surplus power in DTA, which is within the purview of authorized operation. So, the contention of the learned Authorised Representative that the assessee supplied the power to DTA is beyond the authorized operation, cannot be accepted.

19. It is significant to note that mere supply of surplus power in DTA as mentioned in Rule 47 of SEZ Rules, cannot be construed that the assessee carries on business, as there is no DTA Unit of the assessee. Apart from that, SEZ, Mundra by letter, dated 4-10- 2012, directed the assessee to claim refund in terms of Para 2(c) of the notification, then, rejection of refund claims considering under Para 2(d) of notification by the adjudicating authority is totally unwarranted and cannot be sustained. The Tribunal in the case of Tata Consultancy Services Ltd. v. CCE & S.T. (LTU), Mumbai – 2013 (29) S.T.R. 393 (Tri.-Mum.), held that once the Approval Committee has given the nexus and the justification, it was totally unwarranted on the part of the adjudicating authority and the appellate authority to go into this question and come to their own findings in the matter. It has been held as under :-

“6.1  As regards the refund claim of Rs. 6,66,794/- which has been rejected on  the ground that the services to which this amount pertains do not have direct nexus with the authorized operations undertaken by the appellant, this stand of the department is totally incorrect. The Approval Committee which has examined this issue has issued a specific certificate to the appellant indicating the various services received by the appellant and justification for use of such services in relation to authorized operations. The jurisdictional Commissioner of Central Excise is also a member of this Approval Committee. Once the Approval Committee has given the nexus and the justification, it was totally unwarranted on the part of the adjudicating authority and the appellate authority to go into this question and come to their own findings in the matter. Therefore, rejection by the lower authorities of the refund claims of the service tax paid on various services on this ground is bad in law and is accordingly set aside.”

20. Revenue also filed appeals against the impugned orders on the ground that the Commissioner (Appeals) has no power to remand the matter. The Hon’ble High Court of Gujarat in the case of Commissioner of Service Tax Associated Hotels Ltd. – 2015 (37) S.T.R. 723 (Guj.), on the identical issue dismissed the appeal filed by the Revenue. In  that case, the question raised before the Hon’ble High Court as to whether the CESTAT is correct in holding that in Service Tax matters, the Commissioner (Appeals) has power to remand the matter back to the adjudicating authority for de novo adjudication. The Hon’ble High Court held as under :

“15. We, however, cannot accept the argument of Ms. Mandavia that by virtue of sub-section (5) of Section 85, the same limitation on the Commissioner (Appeals) to remand a proceeding contained in Section 35A(3) of the Central Excise Act, 1944 must apply in the appeals under Section 85 of the Finance Act, 1994 also. This is so because, sub-section (5) of Section 85 though requires the Commissioner (Appeals) to follow the same procedure and exercise same powers in making orders under Section 85, as he does in the Central Excise Act, 1944 in appeals, this sub-section itself starts with the expression “subject to the provisions of this Chapter”. Sub-section (4) of Section 85 itself contains the width of the power of the Commissioner (Appeals) in hearing the proceedings of appeal under Section 85. The scope of such powers flowing from sub-section 85(4) therefore, cannot be curtailed by any reference to sub-section (5) of Section 85 of the Finance Act, 1994.”

Thus, the Commissioner (Appeals) has power to remand the matter to the adjudicating authority for de novo decision. So, the appeals filed by the Revenue on both the grounds are liable to be rejected.

RE : Appeals filed by the assessee :

21. The learned Senior Advocate on behalf of the assessee fairly submits that they are not contesting the direction of the Commissioner (Appeals) for verification of the documents by the adjudicating authority. He submits that the Commissioner (Appeals) rejected the refund claim on following issues :-

22. The learned Senior Advocate submits that there is a subsequent development on these issues, which they have stated in their respective appeals, such as; rejection of refund on the documents of M/s. Karnavati Aviation Pvt. Ltd., considering the service under the category of “passenger embarking in India for international journey”. Subsequently, it was classified by the Revenue under the category of “Supply of Tangible Goods”. We find that the Commissioner (Appeals) already remanded some portion of the refund for verification. So, it is appropriate that the adjudicating authority should also examine the above issues on merit in de novo adjudication.

23. In view of the above discussion, the appeals filed by the assessee are disposed of by way of remand to the adjudicating authority. The appeals filed by the Revenue are rejected.”

5. From the above judgment, it can be seen that present appeals involve identical facts and legal issue which was dealt in the above order. Therefore, we feel that there is no need for further discussion and findings.

6. As regards the issue that whether Commissioner (Appeals) has power to remand the matter to Adjudicating Authority, we find that this being a case of refund of service tax, clearly covered by the ratio of Hon’ble Gujarat High Court judgment in the case of Associated Hotels Limited (supra). In the said judgment, the Hon’ble High Court has also referred to the judgments of Hon’ble Supreme Court in the case of Mil India Limited vs. CCE, Noida – 2007 (210) ELT 188 (SC). Therefore, we are of the view that the learned Commissioner (Appeals) has power to remand the matter to the Adjudicating Authority, therefore, on this count also, Revenue’s appeal does not sustain.

7. In view of the above judgment of this tribunal, the Revenue’s appeals are not sustainable. Hence, we uphold the impugned orders.

8. Out of the five appeals, one Appeal No. ST/10133/2015 involve amount of Rs. 29,72,447/-. Therefore, this appeal is liable to be dismissed not only on merits but also on monetary limit as per Government’s Litigation Policy issued vide F. No. 390/Misc/116/2017-JC dated 22.08.2019.

All the appeals filed by Revenue are dismissed.

Pronounced in the open court on 18.03.2020)