SEZ Exemption Can’t Be Denied for Procedural Lapse: CESTAT

The Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that exemption available to services rendered to Special Economic Zone (SEZ) units cannot be denied merely on account of procedural lapses such as non-issuance of Form A-2. The Bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that there is nothing in Notification No. 12 of 2013 that prohibits an SEZ unit from availing the option of not paying the Service Tax ab initio, if the Positive Net Foreign Exchange is not achieved. The appellant/assessee, M/s Hi-Tech Refractory Company, engaged in providing erection, commissioning, installation, and construction services, had rendered construction services to an SEZ unit. The company claimed exemption under Notification No. 40/2012-ST dated June 20, 2012, later superseded by Notification No. 12/2013-ST dated July 1, 2013. During scrutiny of ST-3 returns, the department noted that the appellant had shown ₹53.55 lakh as exempted services out of a total gross amount of ₹59.45 lakh. The department alleged that exemption was availed without fulfilling procedural requirements, particularly the submission of Form A-2 authorization from the jurisdictional Deputy Commissioner. Consequently, a show-cause notice dated October 9, 2015, was issued demanding service tax of ₹6,42,672/-. The adjudicating authority confirmed the demand, denying exemption on the ground of non-compliance with procedural conditions. The appellant argued that the services were admittedly provided to an SEZ unit for authorized operations and that Form A-1 had been duly furnished. The absence of Form A-2, it was contended, was merely a procedural lapse beyond the appellant’s control, as issuance of Form A-2 lies with the jurisdictional authorities. The appellant emphasized that Section 26 of the Special Economic Zones Act, 2005 grants substantive exemption from service tax for services used for authorized SEZ operations and that the SEZ Act has overriding effect under Section 51. The Bench comprising Member (Judicial) Ashok Jindal and Member (Technical) K. Anpazhakan observed that the issue was no longer res integra. The Tribunal extensively referred to earlier decisions, particularly in Shapoorji Pallonji & Co. Ltd., which had relied on High Court and Supreme Court rulings affirming that the SEZ Act, 2005 has overriding effect over other laws, including the Finance Act, 1994. Exemption under Section 26 of the SEZ Act cannot be curtailed by procedural conditions prescribed under notifications issued under the Finance Act. Procedural lapses, such as non-filing or non-issuance of certain forms, cannot defeat substantive exemption where services are admittedly provided for authorized SEZ operations. The Tribunal also referred to judicial findings that once services are rendered for authorized operations within an SEZ, there exists no legal authority to levy service tax, in view of Article 265 of the Constitution of India, unless specifically empowered by law. Further, the Bench noted that Form A-2 is to be issued by the jurisdictional Deputy Commissioner and is not within the direct control of the service provider. Therefore, denial of exemption solely on that basis was held to be unjustified. The Tribunal drew support from the ruling in Sai Wardha Power Company Ltd. v. Union of India, where the Bombay High Court held that once an SEZ unit secures approval from the Approval Committee and furnishes the prescribed declaration, the jurisdictional authority is obligated to issue authorization in Form A-2. Refusal on procedural grounds was found impermissible. Applying the same reasoning, the Tribunal held that substantive exemption benefits cannot be denied for procedural irregularities. Setting aside the impugned order, the Tribunal allowed the appeal with consequential relief, if any. The service tax demand of ₹6.42 lakh was thus quashed. Case Details Case Title: M/s Hi-Tech Refractory Company Versus Commissioner of CGST & Central Excise, Haldia Citation: JURISHOUR-182-CESTAT-2026(KOL) Case No.: Excise Appeal No.77603 of 2018 Date: 27 FEBRUARY 2026 Counsel For Appellant: Sourabh Bagaria & Mr.Indranil Banerjee Counsel For Respondent: S.K.Jha, Authorized Representative Click Here To Read Order Read More: Airline’s Tour Packages Don’t Qualify As “Tour Operator Services”, No Service Tax Payable: CESTAT

SEZ Exemption Can’t Be Denied for Procedural Lapse: CESTAT

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