No Service Tax Payable By CIPLA On Manufacturing And Exporting Of Pharmaceutical Products: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no service tax is payable by Cipla on the manufacturing and export of pharmaceutical products.

The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the respondent-assessee is a holder of a letter of approval issued by the Development Commissioner for the manufacture of pharmaceutical products within the Special Economic Zone, Pithampur, Indore. The assessee availed of various services for setting up their unit in the SEZ, which have been used in relation to the operations of the unit. The amount claimed by way of refund claims has been paid under the reverse charge mechanism, for which they have furnished the certificate from the Chartered Accountant, bank statement, party-wise statements, and details of payment made to the service, provided that the service tax has been paid by them.

The respondent or assessee is a manufacturer and exporter of pharmaceutical products with manufacturing facilities in Indore SEZ. The assessee was availing various services in relation to its authorized operation, such as construction service, telecommunication service, architecture service, consultancy engineer service, manpower recruitment service, security service, etc. Since the services received by the units located at SEZ were exempt from service tax by way of refund claim under Notification No. 40/2012-ST dated June 20, 2012, and under Notification No. 12/2013-ST dated July 1, 2013, the respondent filed six refund claims for the service tax paid on the input services.

A show cause notice was issued, proposing to deny the refund on the ground that the conditions specified in the notification were not complied with. The adjudicating authority rejected the refund claims, which were challenged by the assessee in the respective appeals before the Commissioner (Appeals), who was pleased to allow the refund claims. The department being aggrieved has preferred the appeals before the Tribunal.

The department contended that the Commissioner of Appeals erred in allowing the refund claims when it was a case of express violation of mandatory conditions of the exemption notifications issued under the Finance Act. The exemption notification being beneficial has to be construed strictly, and the burden to claim the exemption under any notification by complying with the conditions is upon the assessee, which the assessee has failed to do so.

The assessee contended that the SEZ unit has an unequivocal exemption from payment of service tax on input services. The refund of service tax cannot be denied due to non-compliance with the conditions of the notifications issued under the service tax.

The tribunal noted that the benefits of exemption granted under the notifications issued under the Finance Act are of a general nature, being available to anyone and not necessarily confined to a unit in the SEZ, which is peculiar in the case of Section 26 of the SEZ Act being a special power of exemption under a special enactment for a unit in a special economic zone. Therefore, notification issued under Section 93 of the Finance Act 1994 cannot be pressed into service to find out whether a unit in SEZ qualifies for exemption or not.

The tribunal held that services rendered by the appellant are fully exempted from service tax in terms of the provisions of the SEZ Act; the condition of exemption by way of refund imposed by virtue of the notifications issued under the provisions of the Finance Act is inconsistent with the provisions of the SEZ Act, and hence the provisions thereof cannot be imposed on the respondent to deny the refund.

Counsel For Appellant: S K Meena

Counsel For Respondent: Sukriti Das

Case Title: Commissioner, Central Excise And Service Tax Versus CIPLA

Case No.: Service Tax Appeal No. 51605 OF 2017

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