CESTAT Allows CENVAT Credit On Service Tax Paid On Input Services Received By The SEZ Unit

The two-member bench headed by Justice Dilip Gupta (President) and Raju (Technical Member) has observed that the assessee could forego exemption and claim the benefit of the CENVAT credit on the amount of service tax paid on input services as would have been available as a refund to an SEZ Unit.

The appellant/assessee, Global Logic India Ltd., had availed and utilised the CENVAT credit of service tax paid on input services received in its SEZ Unit. The appellant could also have claimed exemption by way of refund of the service tax by virtue of notifications dated 01.03.2011 and 20.06.2012, but it opted to take CENVAT credit of the amount instead. The Additional Commissioner and the Commissioner (Appeals) have justified the disallowance of the CENVAT credit taken by the appellant on the sole ground that this benefit was not available before the issuance of the Notification dated 1.07.2013. The Notification contained an express provision that an SEZ unit "shall have the option not to avail of this exemption and instead take CENVAT credit..."

The Department rejected the utilisation of CENVAT credit by the appellant on service tax paid on input services only on the ground that the appellant should have claimed exemption of the tax amount by way of a refund for the period prior to 01.07.2013. The Department has not disputed that all the services utilised by the appellant were input services eligible for CENVAT credit.

The Exemption Notifications dated 01.03.2011 and 20.06.2012 reveal that the Exemption Notifications have been issued under section 93(1) of the Finance Act, 1994 and conditional exemption has been made available only on the fulfilment of the specified conditions. The Notifications expressly recognise the option available to a SEZ unit to take CENVAT credit of the service tax paid on input services, and there is no bar or prohibition prescribed against taking CENVAT credit of the service tax paid on input services. When the option of taking the CENVAT credit is availed by an assessee, the benefit of exemption by way of refund will not be available to an assessee. The notifications themselves treat CENVAT credit as an alternative to the refund mechanism.

The assessee contended that the appellant's eligibility for CENVAT credit on service tax paid on input services received cannot be denied on the basis of the two exemption notifications. The Exemption Notifications gave SEZ units the option of receiving a refund of the service tax paid on input services, while acknowledging that some SEZ units may prefer to take a CENVAT credit for the amount and offset it against their respective output service tax liability. The Exemption Notifications specifically prescribe a condition that the SEZ unit should not have taken CENVAT credit if it wants to claim a refund. The Central Government recognised that an SEZ unit may take CENVAT credit as an alternative benefit to the refund and such taking of CENVAT credit is a legally permissible option under the CENVAT Credit Rules, 2004.

The department contended that an Exemption Notification should not be liberally construed and the beneficiary must fall within the ambit of the exemption and fulfil the conditions.

The Tribunal noted that the appellant is not claiming the benefit of the Exemption Notification but is claiming CENVAT credit on the service tax paid on the input service received by the appellant.

Case Title: M/s Global Logic India Limited Versus Commissioner of Central Goods & Service Tax

Citation: Service Tax Appeal No. 71131 Of 2018

Dated: 04.07.2022

Counsel For Appellant: Advocate Rony Oommen John

Counsel For Respondent: Authorised Representative B.K. Jain

Click Here To Read/Download Order