The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has held that Special Economic Zone (SEZ) units are entitled to a refund of service tax paid on services approved by the Approval Committee for authorized operations, even when such services are consumed entirely within the SEZ. The Tribunal clarified that refund notifications do not disentitle SEZ units from claiming refunds merely because the services are not used for direct manufacturing, provided they are integral to authorized operations.
The Verdict
The appellant, Nokia Solutions and Networks India Private Limited, won its appeal. The CESTAT Chennai set aside the rejection of service tax refund claims amounting to Rs. 46,15,033/- on services such as rent-a-cab, outdoor catering, customs house agent services, and security agency services, holding that these were approved authorized operations under SEZ regulations. The only claim disallowed was Rs. 4,220/- due to invoices issued to a non-SEZ unit. The Tribunal affirmed that once services are approved by the competent authority and tax is paid, refund cannot be denied on the ground that services were consumed within the SEZ.
Background & Facts
The appellant, a registered SEZ unit engaged in manufacturing electronic hardware, filed five refund claims for service tax paid on various services totaling Rs. 1.48 crore. The original adjudicating authority partially allowed these claims but disallowed Rs. 46,20,253/- on three grounds: (i) services not used for authorized operations, including rent-a-cab, outdoor catering, customs house agent services for DTA clearance, and DTA clearance services; (ii) security agency services consumed wholly within the SEZ; and (iii) invoices raised on the Gurgaon unit instead of the Sriperumbudur SEZ unit.
The Revenue contended that services like rent-a-cab and outdoor catering were for staff welfare and not directly linked to manufacturing, thus ineligible for refund. It further argued that Notification 15/2009-ST exempted services consumed wholly within the SEZ from tax liability, thereby precluding refund claims for such services. The appellant appealed to the Commissioner of Service Tax (Appeals-I), whose order was challenged before CESTAT.
The appellant relied on prior Tribunal decisions, including Nokia India Pvt. Ltd. and Hexaware Technologies Ltd., which had consistently held that approval by the SEZ Approval Committee is decisive for determining authorized operations. The appellant also cited Section 26 and Section 51 of the SEZ Act, 2005, which grant immunity from service tax on supplies for authorized operations.
The Legal Issue
The central legal questions were: (1) Whether service tax paid on services approved by the SEZ Approval Committee for authorized operations can be denied as refund merely because the services are consumed wholly within the SEZ? (2) Whether the issuance of invoices to a non-SEZ unit of the same legal entity disentitles the SEZ unit from claiming refund?
Arguments Presented
For the Appellant
The appellant argued that the SEZ Approval Committee had explicitly approved rent-a-cab, outdoor catering, customs house agent, and security agency services as authorized operations. It relied on Notification 9/2009-ST and its amendment via Notification 15/2009-ST, contending that these notifications merely provide a procedural mechanism for refund and do not create substantive disqualifications. The appellant cited CESTAT decisions in Nokia India Pvt. Ltd. and Hexaware Technologies Ltd., which held that once services are approved and tax is paid, refund cannot be denied on the ground of intra-SEZ consumption. It further argued that Section 7 and Section 26(e) of the SEZ Act, 2005, confer an overarching immunity from service tax on supplies for authorized operations, which cannot be negated by procedural refund conditions.
For the Respondent
The Revenue contended that Notification 15/2009-ST, by substituting clause (c) of Notification 9/2009-ST, explicitly excluded services consumed wholly within the SEZ from refund eligibility. It argued that rent-a-cab and outdoor catering services were for staff welfare and not integral to manufacturing, thus outside the scope of authorized operations. It also maintained that since invoices were issued to the Gurgaon unit, the Sriperumbudur SEZ unit could not be considered the recipient of services, thereby disqualifying the refund claim.
The Court's Analysis
The Tribunal undertook a harmonious interpretation of the SEZ Act, 2005, and the relevant notifications. It emphasized that Section 7 and Section 26(e) of the SEZ Act create a substantive immunity from service tax for supplies made to SEZ units for authorized operations. The Tribunal held that Notification 9/2009-ST and its amendment via Notification 15/2009-ST are procedural in nature, designed to facilitate refund claims, and cannot be construed to override the statutory immunity granted under the SEZ Act.
"Notification Nos. 9/2009 and 15/2009 have provided a facilitative regime whereby a developer or units of SEZ, as recipients of taxable service are enabled the facility of claiming refund of Service Tax, wherever assessed and collected by Revenue or remitted otherwise by the taxable service provider, inadvertently."
The Tribunal rejected the Revenue’s argument that services like rent-a-cab and outdoor catering were merely for staff welfare. It noted that the Approval Committee had specifically included these services in the list of authorized operations, and there was no evidence that they were used for personal consumption. The Tribunal further held that such services, even if not directly tied to manufacturing, are integral to the functioning of the SEZ unit and fall within the broad definition of "authorized operations" under Rule 2(l) of the Cenvat Credit Rules, 2004.
Regarding security agency services, the Tribunal held that the fact of intra-SEZ consumption does not disqualify refund eligibility, as the statutory immunity under the SEZ Act applies irrespective of location of consumption. The Tribunal explicitly overruled the Revenue’s interpretation of Notification 15/2009-ST as creating a substantive bar to refund.
On the invoice issue, the Tribunal upheld the rejection of the Rs. 4,220/- claim, finding that the service recipient, as per invoice, was the Gurgaon unit, and the appellant had not established that the services were actually utilized by the SEZ unit.
What This Means For Similar Cases
This judgment significantly clarifies the scope of refund eligibility for SEZ units. Practitioners can now confidently assert that approval by the SEZ Approval Committee is the decisive factor in determining whether a service qualifies for refund, irrespective of whether it is consumed within or outside the SEZ. The ruling reinforces that procedural refund notifications cannot override the substantive immunity granted under the SEZ Act.
Future refund claims for services such as security, transport, catering, and maintenance - once approved by the Committee - should no longer be denied on the ground of intra-SEZ consumption. However, practitioners must ensure that invoices are correctly issued to the SEZ unit, as the Tribunal reaffirmed that the recipient as per invoice is determinative for refund eligibility. This decision also strengthens the precedent value of CESTAT rulings on SEZ matters, particularly where consistent judicial interpretation has been established.
Distinguishing factors include cases where services are not approved by the Committee or where there is clear evidence of personal use by employees. The ruling does not extend to services that are explicitly excluded under the SEZ Act or where Cenvat credit has been availed.
