Procedural Lapse Cannot Be The Basis To Deny Service Tax Refund, Defeating The Object Of SEZ: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the beneficial object of establishing the SEZ tax-free, without any burden of duties, means that the procedural lapse, if any, cannot be the basis to deny the refund.

The bench of Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member) has observed that the general principles of interpretation of the exemption notification, that it has to be construed strictly, do not really apply to the SEZ units, which are otherwise exempted from the liability of the various duties under the main statute itself. The avowed object of providing such exemptions have to be the guiding principle for the applicability and interpretation of the notification to the SEZ units.

The appellant/assessee is in the business of manufacturing and exporting pharmaceutical products at their unit in SEZ, Pithampur, and has a Letter of Approval (LA) for undertaking authorized operations within the SEZ at Pithampur. Under Notification No. 12/2013-ST dated July 1, 2013, the appellant filed two applications in Form A-4 claiming a refund of service tax paid on input services received in the SEZ unit.

The adjudicating authority sanctioned the refund of Rs. 12,39,33,099 for the period January 2017 to March 2017 and rejected the remaining claim of Rs. 5,21,62,728 as time-barred. Similarly, for the period April 2017 to June 2017, the adjudicating authority sanctioned the refund of 44,64,081 towards service tax paid on the specified services used for authorized operations in SEZ and rejected the refund of 50,15,384 as time barred. The appeal filed by the appellant before the Commissioner (Appeals) also met the same fate as per the order dated June 18, 2019.

The appellant contended that the SEZ Act of 2005, being a special statute, prevails over any other act. For calculating the time limit of one year in terms of Notification No. 12/2013, the date of the ISD invoice should be considered, as the SEZ unit comes to know of the tax pertaining to Table II services only after receiving the said ISD invoices.

The Tribunal has held that once the appellant is found to be eligible to claim the refund, the substantive conditions are complied with, and the condition of the time limit for making the claim under the notification, being only a procedural requirement, needs to be construed liberally.

"Considering the beneficial object of establishing the SEZ tax-free, without any burden of duties, the procedural lapse, if any, cannot be the basis to deny the refund to the appellant. The exemption is intended to be absolute, as is further evident from para 3 (II) of the notification), which provides for ab-initio exemption. This strengthens our conclusion that the SEZ Act and the Rules read with the notification are intended to be a beneficial policy for the SEZ and therefore have to be construed liberally," the CESTAT said.

Case Title: M/s Lupin Limited Versus Commissioner of Central Goods & Service Tax & Central Excise

Citation: Excise Appeal No. 51193 of 2020

Date: 23.03.2023

Counsel For Appellant: Bharat B. Raichandani, Deepak Kumar Khokhar

Counsel For Respondent: Rakesh Agarwal