CESTAT favors the assessee on service tax demand under SEZ Act

CESTAT favors the assessee on service tax demand under SEZ Act

The bench said that the prism through which the adjudicatory perception was enunciated did not apply to the service rendered by the appellant

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand and held that the exemption afforded under the Special Economic Zones Act, 2005 is overriding in nature, and the breach of conditions is procedural.

The two-member bench of Ajay Sharma (judicial member) and C.J. Mathew (technical member) ruled that the required documentation was not available for the entire period of the dispute. Still, it could not be denied that at some point the eligibility existed. Thus, the procedural infirmities, for a shorter or longer time, do not supplant the exemption accorded to the supply of services.

The appellant/assessee had assailed the order passed by the tax commissioner for the recovery of Rs.11,89,13,942 as tax payable under the Finance Act, 1994 from 2008-2009 to 2012-2013, along with applicable interest.

The assessee submitted that the adjudication order failed to appreciate that the services rendered by them to Credit Suisse Services (India) Pvt Ltd were not taxable owing to the privileges conferred upon the recipient under the SEZ Act.

It apprised that between June 2009 and February 2011, the appellant rendered taxable service valued at Rs.80,16,46,587 on which the liability of Rs. 8,25,69,598 should have been discharged. This was in accordance with the March 2009 notification and as amended by the May 2009 claim as a refund upon compliance with the specified conditions.

The assessee further stated that from 1 March 2011 to 14 June 2011, the appellant rendered taxable service valued at Rs.16,86,45,901 on which tax liability of Rs.1,73,70,528 should have been discharged. In accordance with the March 2011 notification, it should have been backed by form A-1 which, upon scrutiny, was found to have been verified on 14 June 2011.

Additionally, from 1 July 2012 to 31 March 2013, the appellant availed the exemption against form A-I, which, on 29 August 2012, precluded the privilege between 1 July 2012 and 28 August 2012. During this time, the taxable service valued at Rs.12,92,07,189, was rendered without discharging a liability of Rs.1,59,70,009.

The recovery of Rs.11,59,10,135 was ordered on account of breach of condition in the notifications embodying the procedure by which the appellant could have availed exemption from service tax on the supply of services to units in the SEZ.

On the other hand, the tax department alleged that a proportionate contribution of expenditure was charged by the assessee from its subsidiary enterprises. These were for rendering 'business auxiliary service' within India on which liability had not been discharged.

However, the tribunal allowed the appeal and held that the demand for allegedly rendering services within India was not sustainable.

The bench noted that the SEZ Act was substantially different from the rules that delineate 'exports' from 'domestic supply' in the scheme of the service tax law. It is to be read in the context of the exemption afforded by the SEZ Act and not in terms of the Finance Act.

CESTAT added that the prism through which the adjudicatory perception was enunciated did not apply to the facts of the service rendered by the appellant.