Supply to SEZ: Refund cannot be denied merely because service is not included in approved list, CESTAT

The appellant is registered with the Department and has been paying service tax. The appellant’s services are hired by the Indian Council for Cultural Relations, under the Ministry of External Affairs to manage its various events.

The office of the Directorate General of Audit audited the records of the appellant and found that the appellant had paid the service tax of Rs. 51,21,220 during the period 2006-2007 to 2010-2011 while it had provided services aggregating to Rs. 10,30,78,749 during this period. Audit, therefore, observed that service tax was short-paid. Therefore, the appellant was ordered to pay short-paid service tax aggregating Rs. 1,19,21,936 and also penalties were imposed under Sections 76, 77(2), and 78 of the Finance Act, 1994. Aggrieved, the assessee filed appeal before the appellate authority.

The appellate authority denied the refund on the ground that first the service is not included in the approved list, and secondly, the service provider and service recipient both are the same entity.

Aggrieved the assessee approached the tribunal. The tribunal observed that the Business Support Service is clearly included in the approved list by the approval committee of SEZ. Therefore, it is clear that the Business Support Service is clearly included in the list approved by the approval committee. The tribunal held that even if the same is not included in the approval list even then for this being a procedural lapse refund cannot be denied. The same was held in the case of Mast Global Business Service India Pvt. Ltd, the CESTAT Bangalore has passed the following order: –

“This is only a procedural and is not a mandatory condition as held by the Commissioner (Appeals). Further, the decisions relied upon by the appellant clearly held that the SEZ Act has an overriding effect over other laws. Therefore, this ground on the basis of which refund claims have been rejected is not tenable in low.”

Hence, relying on the decision tribunal held that merely for the reason that the service is not included in the approved list the refund cannot be denied.

As regards the appellant’s service provider and the appellant are the same entity. I find that there is no dispute that the appellant’s service provider is located in Kolkata which is a DTA unit and the appellant’s unit is located in SEZ. As per Sub Rule (7) of Rule 19 of the Special Economic Zone Rules, 2006, if an enterprise is operating both as a Domestic Tariff Area Unit as well as a Special Economic Zone Unit, it shall have two distinct identities with separate books of account. Hence, even if the appellant is not a separate legal entity, the unit being located in SEZ shall be treated as a distinct identity, therefore, the denial of refund on this ground is also not tenable.

Therefore, the appellant is entitled to a refund. The impugned order was not sustainable, hence, the same was set aside. The appeal was allowed.