Exemption u/s 26 of Special Economic Zones Act, 2005 Is Overriding In Nature: CESTAT Quashes Service Tax Demand

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 by section 26 of 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) has held that the required documentation was not available for the entire period of the dispute but, at the same time, it cannot be denied that at some point, the eligibility did exist. The procedural infirmities, for a shorter or longer time, do not in any way supplant the exemption accorded to the supply of services.

The appellant/assessee has assailed the order passed by the Commissioner for the recovery of Rs.11,89,13,942 as tax payable under section 73 of the Finance Act, 1994 for the period from 2008-09 to 2012-13 along with applicable interest under section 75 of the Finance Act, 1994.

The assessee submitted that the adjudication order had failed to appreciate that the services rendered by them to M/s Credit Suisse Services (India) Pvt Ltd were not taxable owing to the privileges conferred upon the recipient by the Special Economic Zones Act, 2005.

It was alleged that between June 2009 and February 2011, the appellant had rendered taxable service valued at Rs. 80,16,46,587 on which the liability of Rs. 8,25,69,598 should have been discharged. In accordance with notification dated 3rd March 2009 and as amended by notification dated 20th May 2009, claimed as a refund upon compliance with the conditions specified. It was alleged that for the period from 1st March 2011 to 14th June 2011, the appellant herein had rendered taxable service valued at Rs.16,86,45,901 on which tax liability of Rs.1,73,70,528 should have been discharged and, in accordance with notification no. 17/2011-ST dated 1st March 2011, should have been backed by form A-1 which, upon scrutiny, was found to have been verified only on 14th June 2011.

It was alleged that the appellant, for the period from 1st July 2012 to 31st March 2013, had availed of exemption against form A-I, which, having been dated only on 29th August 2012, precluded the privilege between 1st July 2012 and 28th August 2012, during which taxable service valued at Rs.12,92,07,189 was rendered without discharging a liability of Rs.1,59,70,009. In sum, the recovery of Rs. 11,59,10,135 was ordered on account of breach of condition in the respective notifications embodying the procedure by which the appellant could have availed exemption from service tax on supply of services to units in special economic zones (SEZ).

The department alleged that a proportionate contribution of expenditure had been charged from their several subsidiary enterprises which were held to be considered for the rendering of 'business auxiliary service' within India on which liability had not been discharged.

The CESTAT allowed the appeal and held that the demand for allegedly rendering services within India is not sustainable.

The tribunal noted that the Special Economic Zones Act, 2005 is substantially different from that in the rules which delineate "exports" from "domestic supply" in the scheme of service tax law and, in view of section 51 of the Special Economic Zones Act, 2005, has to be read in the context of the exemption afforded by section 26 of the Special Economic Zones Act, 2005 and not in terms of the Finance Act, 1994. Consequently, the prism through which the adjudicatory perception has been enunciated does not apply to the facts of the service rendered by the appellant.

Case Title: eClerx Services Limited Versus Commissioner of CGST &Central Excise

Citation: Service Tax Appeal No. 86312 Of 2018

Date: 01/09/2022

Counsel For Petitioner: Advocates Mihir Deshmukh and Ranjan Mishra

Counsel For Respondent: Assistant Commissioner (AR) Dilip Shinde

Click Here To Read Order