CESTAT Delhi on SEZ Service Tax Refunds and Interest: Cummins Turbo Technology Decision Explained

1. Overview of the Case

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) disposed of twelve connected appeals in Cummins Turbo Technology Vs Commissioner of Customs, all arising from a common legal controversy. The appellant, Cummins Turbo Technology (A Division Of Cummins Technologies India Pvt. Ltd.), operates a unit in a Special Economic Zone (SEZ) under the Special Economic Zones Act, 2005 (SEZ Act).

The company had:

  • A corporate office registered as an Input Service Distributor (ISD) under the service tax regime
  • A domestic unit in the Domestic Tariff Area (DTA)
  • An SEZ unit carrying out authorised operations

The corporate office received various input services, discharged service tax, availed CENVAT credit, and distributed such credit to both the DTA unit and the SEZ unit through ISD invoices under the Service Tax Rules.

The SEZ unit then:

  • Took CENVAT credit of service tax reflected in the ISD invoices; and
  • Filed eight separate refund claims under Notification No. 12/2013-ST dated 01.07.2013 (service tax refund mechanism for SEZ units/developers).

These eight refund claims, and three different sets of appellate proceedings arising from them, formed the subject matter of the twelve appeals decided by CESTAT.

2. Nature of the Three Sets of Appeals

2.1 First Set – Refunds Denied as Time-Barred

In four refund applications, the Assistant Commissioner rejected the claims solely on the ground of limitation under Notification No. 12/2013-ST, holding that the applications were filed after one year from the date of payment of service tax to the service provider.

Although the notification conferred a discretionary power on the Assistant Commissioner to condone delay in filing refund claims, that power was not exercised.

On appeal by the assessee, the Commissioner (Appeals), vide Order-in-Appeal dated 11.10.2017, upheld the rejection of these four refund claims.

These findings were challenged before CESTAT through:

  • Service Tax Appeals 50349/2018, 50350/2018, 50351/2018 and 50352/2018

Period involved: January 2015 to March 2016
Disputed refund amount: Rs. 9,57,44,311/-

2.2 Second Set – Interest on Refunds Denied

In a separate group of four refund applications, the Assistant Commissioner:

  • Sanctioned and paid the refund amounts; but
  • Declined to grant interest on delayed sanction, as claimed under section 11BB of the Central Excise Act, 1944, as made applicable to service tax via section 83 of the Finance Act, 1994.

The assessee challenged denial of interest before the Commissioner (Appeals). At the same time, the Revenue filed its own appeals assailing the very sanction of refund.

By Order-in-Appeal dated 19.11.2020, the Commissioner (Appeals) rejected the assessee's claim for interest. This order became the subject of:

  • Service Tax Appeals 50368/2021, 50369/2021, 50370/2021 and 50371/2021

Period involved: April 2016 to June 2017
Sanctioned refund amount: Rs. 9,88,55,966/-

2.3 Third Set – Revenue’s Appeals Against Sanction of Refund

For the same four Orders-in-Original in which refund had been sanctioned, the Commissioner (Appeals), by a separate Order-in-Appeal dated 02.09.2020, allowed the Revenue’s appeals and set aside the grant of refund on the ground that the refund claims were filed beyond the one-year period prescribed in Notification No. 12/2013-ST.

This led to:

  • Service Tax Appeals 50213/2021, 50214/2021, 50215/2021 and 50216/2021

Notably, the Orders-in-Original in the second and third sets of appeals were identical; the difference lay in:

  • One order of the Commissioner (Appeals) rejecting the assessee's appeals on interest
  • Another order of the Commissioner (Appeals) allowing Revenue’s appeals and overturning the very sanction of refund

The Tribunal narrowed the controversy to two central questions:

  1. Eligibility to Refund

    • Whether the SEZ unit was substantively entitled to refund of amounts paid as service tax on input services received through ISD invoices, in light of the SEZ Act and SEZ Rules.

  2. Eligibility to Interest

    • Whether the assessee could lawfully claim interest on delayed sanction of such refunds under the provisions of the Finance Act, 1994 and allied statutes.

4. Assessee’s Key Arguments

The assessee’s counsel advanced, in substance, the following propositions:

  1. Statutory Exemption under SEZ Act Prevails
    • Services provided to an SEZ unit for authorised operations enjoy a direct statutory exemption from service tax under Section 26(1)(e) of the SEZ Act, read with Section 51.
    • As Section 51 gives the SEZ Act overriding force over inconsistent provisions in any other law, service tax was never legally chargeable on such services.