The Ahmedabad Bench of CESTAT has held that if a unit of an enterprise is located in the Special Economic Zone (SEZ), the said SEZ Unit shall be treated as having a distinct identity from the other units of the said enterprise which are located outside the SEZ.
Therefore, the Single Bench of Judicial Member Ramesh Nair held that a claim for refund of the service tax paid by a SEZ Unit on the services received by it from its units located in a Domestic Tariff Area (DTA) could not be denied, even if the SEZ Unit was not a separate legal entity.
The appellant Tega Industries Limited, which is located in a Special Economic Zone (SEZ), entered into an agreement with M/s Tega Industries Limited, Kolkata for receiving certain services. In terms of Notification No. 12/13-ST dated 01.07.2013, the appellant claimed refund of the service tax paid by it on the said services received by it.
The revenue authorities passed an order rejecting the appellant's claim for refund. The Commissioner (Appeals) upheld the rejection of the refund claim on the ground that the appellant had received marketing services on which it had made a claim for refund. The Commissioner (Appeals) held that the marketing services were not listed in the approved list of the approval committee for the SEZ. Also, the Commissioner (Appeals) ruled that since the appellant/service recipient and the service provider were one entity, therefore, it could not be said that the appellant had received the services from the service provider. Against the order of the Commissioner (Appeals), the appellant filed an appeal before the CESTAT.
Vide Notification No. 12/13-ST dated 01.07.2013, services received by a unit located in the SEZ, on which service tax was leviable under Section 66B of the Finance Act, 1994, were exempted from service tax, education cess, and secondary and higher education cess. Under the said Notification, the exemption was available only with respect to the services which were used for the authorised operations. Also, the Notification provided that the said exemption was available by way of refund of the service tax paid on the specified services received by the SEZ Unit, which were used for the authorised operations.
The appellant Tega Industries Limited submitted before the CESTAT that the services received by it were in the nature of operational assistance in marketing, which would fall under the scope of "Support Services of Business and Commerce". The appellant averred that invoices were issued to it by the service provider M/s Tega Industries Limited, Kolkata for providing 'Business Support Service'. Thus, the appellant contended that it had received Business Support Services, which were listed in the approved list and, therefore, the said services were used by it for authorised purposes. Hence, the appellant averred that it was entitled to the refund under the said Notification.
The appellant contended that both the service provider and the appellant/service recipient had separate registrations and thus, they should be treated as two different entities. The appellant added that as per the Special Economic Zone Rules, 2006, if there are two units of the same entity and if one of them is in the Domestic Tariff Area (DTA) and the other is in the SEZ, they shall be treated as two separate legal entities with separate books of accounts. The appellant submitted that under the said Rules, a unit in the SEZ shall be treated as a separate legal entity.
Thus, the appellant averred that it had a separate legal entity from the service provider. The appellant added that even if the service received by it was not included in the approved list, it was merely a procedural lapse which should not prevent the appellate from receiving the refund as per the said Notification.
The revenue department submitted before the CESTAT that the services received by the appellant did not fall under the category of Business Support Services and that the same were marketing services, which were not included in the approved list. The revenue department added that since the service provider and the appellant/service recipient were the same entity, the appellant could not be said to have received any service. Thus, the revenue department contended that refund could not be claimed by the appellant under the said Notification.
The CESTAT observed that the invoices issued by the service provider, which is also the appellant's Kolkata unit, clearly provided that it was in respect of the Business Support Services provided to the appellant. The CESTAT noted that the said Business Support Services were clearly included in the approved list by the approval committee of SEZ.
The CESTAT held that even if it was assumed that the services provided to the appellant fell under the category of marketing services, which were not included in the approval list, even then the refund to the appellant under the said Notification could not be denied, since this was purely a procedural lapse.
The CESTAT observed that the Bangalore Bench of CESTAT in the case of Mast Global Business Service India Pvt Ltd versus Commissioner of Central Tax (2018) had held that, in view of the intention of the Government in enacting the SEZ Act and giving special fiscal concessions to the SEZs, a refund cannot be denied to the SEZ merely on the ground that the services received by it were not included in the approved list.
The CESTAT noted that the service provider is a DTA Unit which is located in Kolkata and that the appellant/service recipient's unit is located in the SEZ. The CESTAT observed that as per Rule 19 (7) of the Special Economic Zone Rules, 2006, if an enterprise is operating both as a DTA as well as a SEZ Unit, the said enterprise shall have two distinct identities with separate books of accounts, however, it shall not be necessary for a SEZ Unit to be a separate legal entity.
Thus, the CESTAT held that in view of the said Rules, even if the appellant was not a separate legal entity, however, since its unit was located in the SEZ it shall be treated as a distinct identity and, therefore, its claim for refund could not be denied.
Hence, the CESTAT ruled that the appellant was clearly entitled for the refund under the said Notification No. 12/13-ST dated 01.07.2013. The CESTAT thus allowed the appeal and set aside the order of the Commissioner (Appeals).
Case Title: Tega Industries Limited versus C.C.E. & S.T.-Vadodara
Dated: 17.06.2022 (CESTAT Ahmedabad)
Representative for the Appellant: Ms. Disha Gursahaney, Advocate
Representative for the Respondent: Ms. Dinesh Prithiani, Assistant Commissioner (Authorized Representative)