Commissioner of Central Goods And Service Tax Navi Mumbai Vs eClerx Services Limited (Supreme Court of India)
Summary: The Supreme Court, in Commissioner of Central Goods and Service Tax, Navi Mumbai v. eClerx Services Limited, Civil Appeal No. 549 of 2023 (arising from Diary No. 42620 of 2022), dismissed the Revenue’s appeal on 27 January 2023 against the CESTAT Mumbai order of 1 September 2022 in Service Tax Appeal No. 86312 of 2018. The dispute concerned whether services supplied to a unit in a Special Economic Zone (SEZ) could lose their exemption merely because procedural forms and verification requirements in service-tax notifications had not been completed at the prescribed time. The Supreme Court’s short order followed the decision in GMR Aerospace Engineering Limited v. Union of India, W.P. No. 13546 of 2018, decided by the Telangana and Andhra Pradesh High Court on 27 December 2018. It noted that the Revenue’s challenge to that precedent, SLP(C) Diary No. 22140 of 2019, had already been dismissed on 26 July 2019; finding no merit in the present appeal, it dismissed the appeal and disposed of pending applications.
The underlying CESTAT proceedings arose from the Commissioner’s order-in-original No. 11/CGST-NM/Commr/SKV/2017-18 dated 15 March 2017, which directed recovery of ₹11,89,13,942 for 2008-09 to 2012-13, with interest under Section 75 and an equivalent penalty under Section 78 of the Finance Act, 1994. eClerx contended that the services supplied to Credit Suisse Services (India) Pvt. Ltd., an SEZ recipient, qualified for the protection of the Special Economic Zones Act, 2005. The original recovery comprised demands attributed principally to allegedly defective SEZ exemption documentation and a separate allegation concerning cost-sharing arrangements with subsidiary entities. The Tribunal examined whether the defects invoked by the Department went to substantive eligibility or merely to the mechanism for documenting an exemption that otherwise existed.
For June 2009 to February 2011, the Department identified taxable supplies of ₹80,16,46,587, with alleged service-tax liability of ₹8,25,69,598, and maintained that the taxpayer should have paid tax before seeking a refund under Notification No. 9/2009-ST, as amended by Notification No. 15/2009-ST. For 1 March to 14 June 2011, services worth ₹16,86,45,901 attracted an alleged liability of ₹1,73,70,528 because the requisite Form A-1 was verified only on 14 June 2011. For 1 July 2012 to 28 August 2012, the Department alleged a further ₹1,59,70,009 on supplies of ₹12,92,07,189, as the form relied upon bore the later date of 29 August 2012. The three procedural components aggregated to ₹11,59,10,135.
Separately, the Revenue alleged that ₹2,72,68,835 received through proportional allocation of expenditure to subsidiary enterprises represented consideration for business auxiliary services, on which ₹30,03,807 was payable. The CESTAT order, as reproduced in the supplied text, does not provide extensive separate reasoning on the accounting character of these intercompany allocations. It does, however, reject the adjudicating authority’s separate treatment of the relevant transactions as taxable services rendered and consumed in India by applying the statutory definition of export in the SEZ Act. The distinction matters: the Tribunal’s operative relief must be read with the grounds it actually addressed, rather than treated as a general ruling on every kind of intercompany cost allocation.
On the principal statutory issue, the Tribunal considered Section 26(1)(e) of the SEZ Act, 2005, which provides for exemption from service tax on taxable services supplied to an SEZ developer or unit for authorised operations, and Section 26(2), which empowers the Central Government to prescribe conditions under that Act. The Tribunal relied on the GMR Aerospace High Court judgment, which had found that such conditions are set out under Rule 22 of the SEZ Rules, 2006 and cannot be supplemented so as to defeat the statutory benefit by separate conditions in notifications under Section 93 of the Finance Act, 1994. In particular, the GMR judgment addressed Forms A-1 and A-2 and distinguished procedural requirements under the service-tax notification regime from statutory eligibility under the SEZ legislation.
The Tribunal also relied on Section 51 of the SEZ Act, which gives that Act overriding effect where another law is inconsistent with it. It considered that an established statutory entitlement for supplies to an eligible SEZ unit could not be defeated by imperfections in the timing or availability of documents. In the record before it, the Department had not concluded that the appellant failed the underlying SEZ eligibility criteria independently of the procedural discrepancies. The Tribunal therefore set aside the demand associated with supplies to Credit Suisse Services (India) Pvt. Ltd. It referred to Reliance Industries Ltd. v. Commissioner of Central Excise, 2016 (41) S.T.R. 465 (CESTAT Mumbai), and Sanghvi Movers Ltd. v. Commissioner of Central Excise, Pune-I, Final Order A/87199/2018 dated 13 July 2018, as supporting authorities.
A further question arose from the adjudicating authority’s view that some services were performed or consumed within India. The Tribunal contrasted the service-tax treatment of exports with Section 2(m) of the SEZ Act, under which supplies of goods or services from the Domestic Tariff Area to an SEZ unit or developer are included within the definition of export. Reading that definition alongside Sections 26 and 51, the Tribunal rejected the proposed domestic-consumption basis for the demand. It set aside the impugned adjudication order and allowed the assessee’s appeal by its order pronounced on 1 September 2022.
The Supreme Court did not deliver a fresh, extended analysis of each demand component. Its order dated 27 January 2023 rested on the earlier GMR Aerospace litigation and dismissed Revenue’s appeal against CESTAT’s decision. Read together, the orders support the proposition that an SEZ statutory service-tax exemption for authorised operations cannot be refused solely because of procedural defects imposed through notifications where substantive entitlement remains established. The decisions concern the pre-GST service-tax framework and must be applied with attention to the particular statutory regime, relevant periods, authorised-operations requirements and actual findings in each case.
Related CESTAT Order: Service Tax Exemption Under SEZ Act Cannot Be Denied for Procedural Infirmities – CESTAT Mumbai.
Cases Discussed
- Union of India v. GMR Aerospace Engineering Limited & Ors., SLP(C) Diary No. 22140 of 2019, dismissed on 26/07/2019 (Supreme Court) — The present Supreme Court order records dismissal of this challenge to the GMR Aerospace High Court ruling; no separate merits reasoning is attributed to the SLP dismissal.
- GMR Aerospace Engineering Limited & Ors. v. Union of India & Ors., 2019 (31) G.S.T.L. 596 (Telangana and Andhra Pradesh High Court); W.P. No. 13546 of 2018; 27/12/2018 — The leading precedent on SEZ statutory exemption under Section 26 and the limits on additional Finance Act notification conditions.
- Sanghvi Movers Ltd. v. Commissioner of Central Excise, Pune-I, Final Order No. A/87199/2018, Appeal No. ST/89404/2014, 13/07/2018 (CESTAT Mumbai) — Cited before the Tribunal as supporting authority in relation to the exemption issue; no exact TaxGuru case page reliably identified.
- Reliance Industries Ltd. v. Commissioner of Central Excise, 2016 (41) S.T.R. 465 (CESTAT Mumbai) — Also relied upon by the appellant for the SEZ service-tax exemption position; no exact TaxGuru case page reliably identified.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
The judgment relied upon in “M/s GMR Aerospace Engineering Limited & Ors. Vs Union of India & Anr.” (W.P. No. 13546 of 2018) decided on 27.12.2018 by the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh was challenged under Article 136 (in a SLP(C) Dy. No. 22140 of 2019) which was dismissed by this Court on 26.07.2019.
Following the said decision, this Court holds that there is no merit in the appeal. It is accordingly dismissed.
All pending applications are disposed of.
Delay condoned.
The appeal is dismissed in terms of signed order.
All pending applications are disposed of.
