SEZ Units Entitled to Service Tax Refund on Rent-a-Cab, Outdoor Catering & Business Support Services: CESTAT Chennai
Case Overview
Nokia India Private Limited Vs Commissioner of GST and Central Excise (CESTAT Chennai)
The CESTAT Chennai recently adjudicated upon a set of appeals preferred by a Special Economic Zone (SEZ) unit operating in the software services sector, challenging the denial of service tax refund claims on certain specified services used in the course of its authorised operations. The Tribunal, after examining the facts and the applicable legal framework, partly allowed the appeals, reaffirming the eligibility of SEZ units to claim refunds on service tax paid in respect of approved input services.
Background and Facts of the Case
The appellant, Nokia India Private Limited, is an SEZ unit engaged in the provision of software services. Under the applicable legal framework governing SEZ operations, the Development Commissioner had approved certain services as "specified services" eligible for exemption when used in authorised operations.
The appellant had exercised the option of first paying service tax on the following specified services and thereafter claiming a refund of the amounts paid:
- Rent-a-cab operator service
- Business support service
- Outdoor catering service
Refund claims aggregating to Rs. 26,30,761/- and Rs. 20,99,852/- respectively were filed for the relevant periods. However, the adjudicating authority issued show cause notices and subsequently rejected both claims. The primary ground for rejection was that the appellant had failed to produce adequate evidence demonstrating that these services were directly connected with its authorised manufacturing/operational activities.
The Commissioner (Appeals), on the first appeal, upheld the rejection orders passed by the adjudicating authority. Aggrieved by this outcome, the appellant approached CESTAT Chennai by way of these appeals.
Dual Mechanism Available to SEZ Units for Service Tax
An SEZ unit has two distinct options under the law with respect to specified services approved by the Development Commissioner:
- Procure specified services without payment of service tax (upfront exemption route), or
- Pay service tax first and subsequently claim a refund of the amount paid.
In the present case, the appellant had opted for the second route—paying service tax on the specified services and thereafter seeking a refund. The Tribunal acknowledged this dual mechanism and noted that the lower authorities had not adequately considered the legal entitlement flowing from this option.
Arguments Raised by the Appellant
The counsel appearing for Nokia India Private Limited advanced the following key submissions before the Tribunal: