The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax refunds cannot be denied merely on account of procedural or documentation-related deficiencies when the substantive conditions for exemption are fulfilled.
The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) set aside orders that had denied refund claims aggregating to ₹33.98 lakh relating to services used for authorized operations in its SEZ unit.
The appellant/assessee had established a manufacturing unit in a Special Economic Zone in Srikakulam district of Andhra Pradesh for the production of pharmaceuticals and active pharmaceutical ingredients. The unit had been duly approved by the competent SEZ authorities and was carrying out authorized operations under the Special Economic Zones Act, 2005.
During the period from January 2015 to November 2015, the company availed various taxable services including Customs House Agent (CHA) services, rent-a-cab services, transportation services and works contract services. Service tax on these services had either been paid by the service providers or discharged by the company under the Reverse Charge Mechanism (RCM).
Subsequently, the company filed a refund claim of ₹34.70 lakh under Notification No. 12/2013-ST. While a small portion of the refund was sanctioned, authorities rejected ₹33.98 lakh on grounds such as invoice mismatches, non-submission of original invoices, incomplete addresses, and alleged non-inclusion of certain services in the approved list of services.
The Commissioner (Appeals) upheld the rejection, prompting the company to approach the Tribunal.
The appellant contended that the refund had been denied solely on technical and procedural grounds despite there being no dispute regarding receipt of services, payment of service tax, or use of those services for authorized SEZ operations.
The company argued that documentary evidence established payment of service tax on CHA services and their use for imports meant for the SEZ unit. In transportation-related services, service tax had been discharged under the Reverse Charge Mechanism and supporting challans and records had been produced. Rent-a-cab services were also subjected to service tax under RCM and were genuinely used for SEZ operations. Works contract services relating to piling work for the Hormone Block formed an integral part of the infrastructure required for authorized manufacturing activities in the SEZ.
The company further relied on Section 51 of the SEZ Act, 2005, which gives overriding effect to the provisions of the SEZ Act over inconsistent provisions contained in other laws.
The Department argued that Notification No. 12/2013-ST is a conditional exemption notification and all prescribed conditions must be strictly complied with. It maintained that several invoices were defective, some original documents were not produced and certain services were not included in the approved list.
The Bench observed that the central issue was whether refund of service tax paid on services admittedly used for authorized SEZ operations could be denied merely because of procedural deficiencies in documentation.
The Tribunal emphasized that the SEZ Act was enacted to grant fiscal incentives and tax exemptions to SEZ units and that Section 26 specifically provides exemption from taxes and duties in respect of services used for authorized operations. It also noted the overriding effect of Section 51 of the SEZ Act.
Importantly, the Bench recorded that neither the receipt of services nor the payment of service tax nor the utilization of services for SEZ operations had been disputed by the Revenue. The refund claims had been rejected primarily on procedural grounds.
Regarding CHA services, the Tribunal held that once receipt of services, payment of tax and nexus with authorized operations were established, refund could not be denied merely because of invoice presentation issues or clerical discrepancies.
Similarly, for transportation services where tax had been paid under the Reverse Charge Mechanism, the Tribunal found that denial of refund merely because some original invoices were unavailable was unjustified when tax payment and utilization for authorized operations stood proved.
The Tribunal rejected the Department’s objection relating to rubber-stamp corrections and address-related issues in invoices for rent-a-cab services, describing such objections as purely technical in nature.
The Bench reiterated that procedural infractions which do not affect substantive eligibility cannot be used to deny exemption or refund benefits. The purpose of invoices, it noted, is merely to establish the identity of the recipient, the nature of the service and payment of tax, all of which stood substantially proved in the present case.
A substantial portion of the disputed refund related to works contract services used for piling work in the Hormone Block. The Tribunal held that infrastructure creation for an approved manufacturing facility in an SEZ is intrinsically connected with authorized operations and therefore eligible for refund benefits.
The Bench observed that the phrase “used for authorized operations” cannot be interpreted narrowly in a manner that defeats the purpose of the SEZ scheme. Denial of refund merely because the description in invoices did not exactly match the wording in the approved list of services amounted to placing form above substance.
Allowing the appeal, the Tribunal held that the disputed services were received and utilized for authorized operations of the SEZ unit. Payment of service tax was undisputed. Refund cannot be denied on account of invoice discrepancies, corrections, absence of some original invoices or minor variations in service descriptions. The SEZ Act and exemption framework require a liberal and purposive interpretation. The appellant was entitled to the refund of service tax paid on the disputed services.
Accordingly, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.
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