The issue under consideration is regarding rejection of refund claimed by the appellant being service tax paid for the services received in the SEZ.
CESTAT states that, as per condition no. 3(f) (ii) under Notification No. 40/2012-ST provides for the unit in a SEZ claiming exemption by way of refund, to have paid the amount indicated in the invoice/ bill or as the case may be, challan, including the service tax payable, to the person liable to pay the said tax or the amount of service tax payable under reverse charge, as the case may be, under the provisions of the said Act. Accordingly, they find that the Court below have erred in misconstruing the condition in clause (f) of Sl. No.(ii) of the Notification No. 40/2012-ST as the requirement is – SEZ developer or unit has paid the service tax payable under reverse charge or as the case may be. Admittedly, appellant have paid the service tax under reverse charge and produced the challan, and further they hold that they have rightly discharged the service tax as recipient of service in terms of 2nd proviso to Rule 7 of the Point of Taxation Rules. They further find that there is no such essential condition of payment of amount to the service provider. Accordingly, the appeal is allowed with consequential benefits and the impugned order is set aside. The Adjudicating Authority is directed to grant the refund within a period of 45 days from the receipt of this order alongwith interest as per rules.
FULL TEXT OF THE CESTAT JUDGEMENT
The appellant, M/s Cummins Technologies India Pvt. Limited is a unit located in Special Economic Zone (SEZ) at Pithampur, M.P. and are engaged in the manufacture of Turbo chargers and parts, components, sub assembly of turbochargers, which is the authorised operation under the SEZ scheme. The present appeal is filed against the impugned order-in-appeal whereby refund claim by the appellant T. Appeal No. 52171 of 2016-SM being service tax paid for the services received in the SEZ has been rejected in part.
2. The appellant has received ‘Customers Support Services’ from its associated enterprise, ‘Wuxi Cummins Turbo Technologies Limited’, China, (Wuxi CTT in short) under Agreement dated 21.06.2011. The copy of agreement, which is annexed in the paper book provides that Wuxi CTT is engaged in similar business of manufacture, sales and service of Turbocharger and its components in China. The appellant as manufacturer – exporter was providing warranty for its products, for which they required after sales service. Wuxi CTT was having adequate knowledge, experience and resources to provide ‘Customer Support and Service’ to customers of appellant in China. Accordingly, under the agreement which was made effective from 01.01.2011 till 31.12.2013, unless terminated earlier, provided for various obligations on Wuxi CTT to provide ‘Customer Support Services’ for the products of the appellant exported and sold in China. Accordingly, Wuxi CTT was to act as a single point in China at local level and for that to maintain adequate trained personnel. Further, Wuxi CTT was required to address warranty issues under the terms of warranty and to furnish to the appellant details of warranty and any claim by their customer. Wuxi CTT was also required to provide monthly and annual reports for guidance as well as demand forecast for use of the appellant. In consideration, appellant was obligated to pay 5% of the ex-works price invoiced to customer in China. Further, the appellant was required to make payment on a half yearly basis. Further, the agreement provides that it can be terminated by any party upon sixty days notice.
3. Accordingly, appellant was receiving after sales services and support under warranty from Wuxi CTT and Wuxi CTT was raising monthly invoices on the appellant for their services. On such receipt of services the appellant accounted for the periodical invoices through books of accounts and discharged service tax liability on the same under Reverse Charge Mechanism (RCM) in terms of Section 66A of the Finance Act, for the period July, 2012 to July, 2013 on accrual basis. This agreement was eventually terminated under ‘Agreement of Termination’ dated 18.11.2013 (w.e.f. 01.01.2013).
4. Under the provisions of the Special Economic Zones Act, 2005 provide for setting up of SEZ units within the territory of India and for providing inter alia immunity, exemption from tax, duties and cess. Section 7 of SEZ Act enjoins that in case goods or service is exported outside or imported into India, or procured for domestic tariff area by a unit in SEZ or a developer, subject to such terms and conditions and limitation, as may be prescribed, exempt from payment of tax, duties, cess under all enactment specified in the first schedule. Further, Section 26(1)(e) provides that sub section (2) thereof, every developer and entrepreneur shall be entitled to exemption from service tax under Chapter-V of the Finance Act on taxable services provided to a developer or a unit, to carry on the authorised T. Appeal No. 52171 of 2016-SM operation in the SEZ under the Act. Further, Section 51 of the SEZ Act provides an overriding effect over other Acts.
5. In order to effectuate the mandate of exemption of service tax to a unit or developer in SEZ, the Government have provided for the mechanism of refund of service tax under notification issued under Section 93(1) of the Finance Act. Accordingly, the appellant to claim the exemption from payment of service tax, applied for refund of the service tax paid under RCM in terms of Notification No. 42/2012-ST read with amending Notification No. 12/13-ST by filing refund application on 17.12.2013 for the period July, 2012 to July, 2013, for an amount of Rs. 15,83,427/-. In Support of the claim, the appellant filed copy of e-challans evidencing payment of service tax, list of specified services approved by the approval Committee of SEZ, copy of agreement between the appellant and the service provider Wuxi CTT, copy of letter of authorisation.
6. In response to clarification sought by the Department, appellant by their letter dated 05.03.2014 clarified that they have submitted the GAR-7 challans and service tax have been paid under RCM. The service qualified under the category of BAS, received from associated company located outside India. Further, clarifying that since the service provider raises monthly bill and they have made provision or entry in the books of accounts, and paid service tax accordingly under Section 66B read with second proviso to Rule 7 of Point of Taxation Rules.
7. Thereafter, show cause notice dated 09.07.2014 was issued proposing to reject the refund claim on the following grounds:
a. Challans for payment of service tax and agreement are not enough for ascertaining that services on which service tax has been paid under RCM, has been utilised for the authorised operation of the SEZ. Because they have another unit other than the SEZ unit, and the agreement of service is not specific for the SEZ unit.
b. Services received from associated enterprises located in China are not taxable in India under Section 66B of the Finance Act, 1994. As tax is leviable on the service provided or agreed to be provided in the taxable territory, by one person to another. It appeared to Revenue that this service, in the facts of the case, have been provided in China, which is not a taxable territory.
c. It was further alleged that appellant have not provided supporting documents of taxable value amounting to Rs.1,39,96,226/- and thus it is not clear what type of specified service has been received by them.
8. The show cause notice was adjudicated on contest vide order-in-original dated 29.01.2015 by the Assistant Commissioner, observing that the value of taxable service received during the period July, 2012 to July, 2013 is Rs. 1,28,10,900/- on which a total service tax of Rs.15,37,308/- have been paid. As required under Condition 3(f) of Notification No. 40/2012-ST, which requires the refund claim to be accompanied by list of specified services as authorised for operation, as approved by the Approval Committee of SEZ, a copy of declaration form A-1, invoice or a bill, copy of challan towards proof of payment of tax, declaration by the unit in SEZ to the effect that the services /specified service on which refund is claimed, has been used for the authorised operation in the SEZ, proper account of such specified services received and used is maintained, to be produced before the officer sanctioning refund and the account or documents of the SEZ unit in proof of payment of service tax and its refund based on the invoice/ bill for the challan as the case may be. The Assistant Commissioner observed that the appellant have not only complied with the declaration required in para 3 (f)(ii)&(iii) but also the prescribed condition at para 2(g) of the said notification. Condition 2(g) provides for not taking of cenvat credit of service tax paid, under the Cenvat Credit Rules.
9. As regards the objection of Revenue under Section 66B of the Finance Act, the appellant explained that the place of service is the location of recipient of the service under Rule 3 of ‘Place of Provision of Service Rules, 2012’. Accordingly, as the appellant company is located in India and the associated company is located in China has provided the service under agreement to appellant, place of provision is in India and accordingly liable to service tax in terms of Section 66B of the Finance Act.
10. Further, appellant had declared that the specified service have been received and used for the authorised operation in their SEZ. Also another declaration from Senior Manager of DTA unit at Debas, that no service has been received by them from Wuxi CTT, China. Appellant also submitted certificate of Chartered Accountant with bank statement/ advice as proof of payment made to the service provider of Rs.37,17,771/- towards service received for the period July, 2012 to December, 2012. It was further clarified that in view of the termination of the service agreement w.e.f. 01.01.2013, the amount booked for provision of service in the books of account Rs.90,93,129/- for the period January, 2013 to July 2013, was not paid to the service provider. However, they have paid service tax upon booking of such service, based on the invoice of service provider in their books of account and paid service tax under reverse charge mechanism. The Assistant Commissioner further observed that under the reverse charge mechanism, under Section 68(2) of the Finance Act read with Notification No. 30/12-ST, in respect of service provided by a person located in a foreign country, liability for payment of service tax will be in the hands of service recipient located in India. It was further observed that on the amount of payment made to the service provider Rs.37,17,771/-, the service tax liability works out to Rs.4,59,516/- (for the period July, 2012 to December, 2012). However, they have paid a total service tax of Rs.15,83,477/-, which otherwise is not admissible to them as the release of payment in foreign currency to overseas service provider is only to the tune of Rs.37,17,771/-. Further, held that the refund claim is sanctionable to the extent of actual payment made. Accordingly, the refund was sanctioned for Rs.4,59,516/- and was rejected for the balance amount of Rs. 11,23,911/-, relying on Condition No. 3(f)(ii) under Notification No. 40/2012-ST.
11. Being aggrieved, the appellant preferred appeal before the learned Commissioner (Appeals) who vide impugned order, on the ground that the Assistant Commissioner have travelled beyond the scope of show cause notice, as no such proportionate disallowance of refund was proposed on the basis of payment made. The Commissioner (Appeals) have observed that the service agreement was not solely for SEZ unit, and hence the said ground was rejected. It was further observed that the appellant have submitted proof of payment of service tax, but have not submitted any evidence to establish that service tax was paid for services received and utilised by them.
12. As regards the ground that service tax has been rightly paid under the Point of Taxation Rules, it was further observed that appellant have failed to present a case whether the condition of notification in question have been fulfilled alongwith documentary evidence, in support of the claim. It was further observed that in absence of payment to service provider for the period January, 2013 to July 2013, the service does not seem to have been received. Accordingly, the order-in-original was upheld.
13. Being aggrieved, the appellant is before this Tribunal inter alia on the grounds that there is unequivocal exemption from payment of service tax on receipt of input services for authorised operation, to a SEZ unit, referring to Section 26(e) read with Section 26(2) and Section 55(e) of SEZ Act. Further, SEZ Rules, 2006 under Rule 31 provides for exemption from service tax to a SEZ unit, of services used for its authorised operation. Thus, under the provision read with Rules which have overriding effect on the provisions of the Finance Act, 1994 (ST), no embargo can be made. Reliance is placed on the ruling of this Tribunal in Intas Pharma Limited vs. CST, Ahmedabad -2013 (7) TMI 703 –CESTAT New Delhi and also in the appellant’s own case reported as 2018 (5) TMI 565-CESTAT, New Delhi. It is further urged that Rule 7 of Point of Taxation Rules provide for determination of point of taxation in case of specified services or person. The second proviso to Rule 7 provides for point of taxation in case of import of service from an associated enterprises, as the date of debit in the books of accounts of the person receiving the service or the date of making the payment, whichever is earlier. Therefore, the second proviso to Rule 7 of POTR creates a deeming fiction by providing the date of debit in the books of the recipient/ appellant as point of taxation, and thus service tax has been rightly paid under the reverse charge mechanism also for the period January, 2013 to July, 2013. Reliance is placed on the following rulings to the effect that once there is no dispute that service tax has been paid by the SEZ unit, refund is admissible.
i) Mylan Labs Ltd. vs. CST, Hyderabad -2017 (9) TNMI 423 –CESTAT, Hyderabad.
ii. Hindustan Zinc Ltd. vs. CCGST -2019 (7) TMI 488-CESTAT, New Delhi.
iii. CCE, Delhi vs. Welspring Universal-2018 (359) ELT 635 (Del.).
Reliance is also placed on the ruling of the coordinate Bench of this Tribunal in Lanco Solar Pvt. Ltd., Vs. CT, CE&C, Raipur – 2020 (4) TMI 77 –CESTAT, New Delhi. Accordingly, he prays for allowing the appeal with consequential benefits.
14. Learned Authorised Representative appearing for the Revenue relies on the findings of the Court below. In support of the claim he relied on the following case laws:
i) K. Steel Ltd. vs. Union of India-1978 (2) ELT J355(SC).
ii) Commissioner of Service Tax vs. ITC Ltd., 2014 (36) STR 481 (Del.)
15. Having considered the rival contentions, I find that Condition No. 3(f) (ii) under Notification No. 40/2012-ST provides for the unit in a SEZ claiming exemption by way of refund, to have paid the amount indicated in the invoice/ bill or as the case may be, challan, including the service tax payable, to the person liable to pay the said tax or the amount of service tax payable under reverse charge, as the case may be, under the provisions of the said Act.
16. Accordingly, I find that the Court below have erred in misconstruing the condition in clause (f) of Sl. No.(ii) of theNotification No. 40/2012-ST as the requirement is – SEZ developer or unit has paid the service tax payable under reverse charge or as the case may be. Admittedly, appellant have paid the service tax under reverse charge and produced the challan, and further I hold that they have rightly discharged the service tax as recipient of service in terms of 2nd proviso to Rule 7 of the Point of Taxation Rules. I further find that there is no such essential condition of payment of amount to the service provider. Accordingly, the appeal is allowed with consequential benefits and the impugned order is set aside to the extent it has disallowed the refund amount of Rs. 11,23,911/-.
17. The Adjudicating Authority is directed to grant the refund of Rs.11,23,911/- within a period of 45 days from the receipt of this order alongwith interest as per rules.