CESTAT Chennai Grants SEZ Service Tax Refund of Rs.13,37,485 to ATC Tires — "Wholly Consumed" Condition Not a Bar

Background and Overview

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, delivered a significant ruling in favour of an SEZ unit engaged in the manufacture of excisable goods, holding that a refund of service tax paid on services availed for authorised SEZ operations cannot be denied merely on the ground that such services were not "wholly consumed" within the Special Economic Zone. The case — ATC Tires Private Limited Vs Commissioner of GST and Central Excise (CESTAT Chennai) — has important implications for all SEZ units seeking service tax refunds under Notification No. 17/2011-Service Tax dated 01.03.2011.

The assessee, an SEZ unit manufacturing goods falling under Chapter 40 of the Central Excise Tariff Act, 1985, had filed a refund claim of Rs.1,27,93,547 before the adjudicating authority. Of this, only Rs.1,03,43,994 was sanctioned. The assessee appealed, and the Commissioner (Appeals) extended partial relief but still sustained the rejection of Rs.14,69,387. Before the Tribunal, the assessee specifically contested the denial of Rs.13,37,485 pertaining to the quarters April–June 2015 and July–September 2015.

Services for Which Refund Was Disputed

The refund claim that remained under challenge before the Tribunal covered a wide range of services, all of which had been approved by the SEZ Unit Approval Committee as necessary for authorised operations. These included:

  • Construction of factory building (M/s. Coromandel Engineering Company Limited) — Rs.11,02,415
  • Insurance brokerage services (Prudent Insurance Brokers Pvt. Ltd.) — Rs.46,350
  • Architectural and design consultancy (Jayam Consultants Pvt. Ltd.) — Rs.30,900
  • Payroll processing (HCCA Business Services Pvt. Ltd.) — Rs.18,802
  • Statutory compliance advisory (KVM Advisory Services Pvt. Ltd.) — Rs.41,200
  • Testing and inspection of coal (Intertek India Pvt. Ltd.) — Rs.3,441
  • Legal consultancy (Lakshmi Kumaran & Sridharan) — Rs.44,448
  • Recruitment services (ABC Staffing Solutions Pvt. Ltd.) — Rs.4,892
  • Insurance (Future Generali India Insurance Company Limited) — Rs.9,831
  • Software development (Simulytics Services) — Rs.20,600
  • Electricity brokerage through IEX (Manikaran Power Limited) — Rs.185
  • Telephone services (Reliance India) — Rs.1,545

All of these services were claimed to have been utilised exclusively for authorised operations of the SEZ unit, and the service tax paid on each was undisputed.

Position of the Revenue and Lower Authorities

The Revenue's primary objection, which was adopted by the Commissioner (Appeals) in sustaining the rejection, was that the services in question were not "wholly consumed" within the SEZ. Additionally, certain services — particularly payroll processing and related advisory activities — were alleged to have no direct connection with manufacturing activity within the SEZ.

Key Revenue Argument: Services that are not wholly consumed within the geographical boundary of the SEZ do not qualify for exemption/refund under Notification No. 17/2011-ST.

However, notably absent from the lower appellate order was any recorded finding that the disputed services were unrelated to the authorised operations of the SEZ unit — a point that the Tribunal found to be decisive.