SEZ Service Tax Refund Cannot Be Denied Merely Because Services Were Omitted from Approved List: CESTAT Bangalore
Case Overview
Harman Connected Services Corporation India Pvt. Ltd. Vs Commissioner of Central Tax (CESTAT Bangalore)
The CESTAT Bangalore, in this significant ruling, overturned the order of the Commissioner (Appeals) that had denied a service tax refund to an SEZ unit solely on the ground that certain input services were absent from the Approved List issued by the Development Commissioner. The Tribunal firmly established that a procedural omission of this nature cannot defeat the substantive exemption entitlement available to SEZ units under the SEZ Act, 2005.
Background and Facts of the Case
The appellant, engaged in providing Information Technology Software Services, had filed a refund claim on 26.09.2016 amounting to Rs. 62,69,973/- for the quarter covering October 2015 to December 2015. The claim pertained to service tax paid on specified input services used for authorised operations within its Special Economic Zone (SEZ) unit, filed under Notification No. 12/2013-ST dated 01.07.2013, as amended by:
Notification No. 07/2014-ST dated 11.07.2014Notification No. 02/2016-ST dated 03.02.2016Notification No. 30/2016-ST dated 26.05.2016
Upon adjudication, the Assistant Commissioner of Central Tax, vide Order-in-Original dated 23.05.2018, sanctioned refund of Rs. 50,55,989/- but rejected the balance amount of Rs. 12,13,983/-. The ground for rejection was that specific services — namely Business Auxiliary Services and Management and Business Consultancy Services — did not find mention in the Approved List issued by the Development Commissioner of the SEZ.
The Commissioner (Appeals) upheld this partial rejection vide order dated 05.08.2020, prompting the assessee to approach CESTAT Bangalore.
Submissions Advanced by the Assessee
The assessee's counsel advanced several substantive arguments challenging the legality and sustainability of the impugned order:
Improper Appreciation of SEZ Act Provisions
The assessee contended that both the lower authorities had failed to correctly appreciate the provisions of the SEZ Act, 2005 and the definition of input service as applicable to SEZ operations. The rejection of Rs. 12,13,983/- was characterised as legally untenable.
Nature and Use of Disputed Services
It was argued that Business Auxiliary Services and Management and Business Consultancy Services were integral to the export of taxable output services. The assessee submitted that the mere absence of these services from the Approved List could not lead to the conclusion that they were not used for authorised operations — especially when actual usage for such operations was not under dispute.
Overriding Effect of the SEZ Act
The assessee relied on the well-established principle that the SEZ Act, 2005 overrides the provisions of the Finance Act, 1994. It was submitted that Notification No. 17/2011-ST dated 11.03.2011, Notification No. 40/2012-ST dated 20.06.2012, and Notification No. 12/2013-ST dated 01.07.2013 are merely procedural mechanisms to operationalise refund claims. These notifications cannot be read as imposing any substantive disability on an assessee who has consumed services entirely within the SEZ and paid service tax thereon.