Service Tax is exempt for authorized operations conducted within SEZ

The CESTAT, Ahmedabad in the case of M/s. Inox India Ltd. v. Commissioner of Central Excise [Service Tax Appeal No. 10341 of 2016-DB dated March 07, 2024], held that once the legislature by way of an enactment has provided certain exemptions, any notification issued under any other enactment will not take away the right of the exemption from payment of the Service Tax to the Appellant for the activity while falls under category of the authorized operations within a SEZ. Thus, services received from abroad shall remain exempted as per Notification No. 15 of 2009-ST dated May 20, 2009, and the demand raised against the Appellant is without any merit.

Facts

M/s. Inox India Ltd. ("the Appellant") was registered with the Service Tax Department for various services. During the course of the audit of the financial records of the Appellant, it was observed by the Department that during 2009-2010 and 2010-2011, the Appellant had paid an amount of Rs. 1,46,35,090/- as commission towards sales promotion commission on export sales to their foreign agents located outside India. The services rendered by the foreign based agents to the Appellant were considered taxable by the Department under the category of 'Business Auxiliary Services' as provided under the Section 65(105) (zzb) of the Finance Act, 1994 ("the Finance Act") read with the Section 66A of the Finance Act and the Taxation of Services (provided from outside India and received in India) Rules, 2006.

As per the provisions of the Finance Act, any services specified in Section 65(105) of the Finance Act are provided by the person who has a business or an establishment or a place of residence in a country other than India and has received by a person who has a business or an establishment or a place of resident of India, in that case, such service shall be taxable service and such service shall be treated as if the recipient himself has provided such services in India.
Therefore, the Department issued a Show Cause Notice dated September 19, 2014 ("the Impugned SCN") where Service Tax of Rs. 15,07,415/- was demanded under the provisions of Section 73 (1) of the Finance Act. The Impugned SCN invoked penal provisions as well as a provision for charging interest as per Section 75 of the Finance Act.

The matter got adjudicated vide Order-In-Original dated March 31, 2015 ("the Impugned Order") where all the charges as invoked in the Impugned SCN were confirmed by the Learned Adjudicating Authority. The Appellant approached the Office of the Commissioner (Appeal), however the Commissioner (Appeal) vide Order-In-Appeal dated December 01, 2015 ("the Impugned Order") rejected the appeal of the Appellant and against the same.
Hence, aggrieved by the Impugned Order, the present appeal was filed before the CESTAT.

Issue

Whether the services received from abroad are exempt from the Service Tax?

Held

The CESTAT, Ahmedabad in Service Tax Appeal No. 10341 of 2016-DB held as under:

• Observed that, the unit of the SEZ was entitled for a refund of the Service Tax paid for authorized operations. As per Notification No. 9/2009-ST dated March 03, 2009 as amended by the Notification No. 15 of 2009-ST dated May 20, 2009("the Exemption Notification") a complete exemption has been provided from payment of service tax for authorized operations conducted within SEZ. Since the services have been availed by the Appellant from outside India within SEZ. Therefore, barring a brief period of two months for the majority of the period the services availed from foreign based agent for the promotion of the sales was falling under the exempted category as the services received were in the SEZ unit.
• Noted that, the substantive benefit of the service tax exemption provided under Section 26 of the Special Economic Zone Act, 2005 ("the SEZ Act") and Rule 31 of the Special Economic Zone Rules, 2005 ("the SEZ Rules") cannot be denied only on procedure requirement the Exemption Notification. Once the legislature by way of an enactment has provided certain exemptions, any notification issued under any other enactment will not take away the right of the exemption from payment of the Service Tax to the Appellant for the activity while falls under the category of the authorized operations within a SEZ. Therefore, services received from abroad shall remain exempted and the demand raised against the Appellant is without any merit.
• Relied on, Tribunal's decision in case of SRF Limited v. Commissioner of Customs, Central Excise and Service Tax LTU New Delhi reported under 2022 (64) GSTL 489 Tribunal-Delhi, held that the charge of excise duty under Section 3 of the Central Excise Act, the charge of Customs Duty under Section 12 of the Customs Act and the charge of service tax under Sections 66, 66A and 66B of the Finance Act, will not apply to goods and services supplied to developers and units for authorized operations in the SEZ areas by virtue of the overriding provisions of the SEZ Act. Any exemption notifications and conditions therein aretherefore, redundant because, the Parliament itself has through Section 51 of the SEZ Act, overridden the charge in the other laws.
• Noted that, the SCN has been issued by the Department is invoking the extended time proviso under Section 73(1) of the Finance Act as the Impugned SCN was issued on September 19, 2014 for the period April 2009 to March 2011. Hence, all the transactions of foreign exchange payments were reflected in their books of account and by taking necessary permission from the Reserve Bank of India. The elements for invoking the extended time period such as fraud, collusion, misstatement and suppression of facts with an intent to evade duty are absent in this case and therefore, the demand is time barred and same also deserves to be dropped on the grounds of limitation.
• Held that, the Impugned Order in appeal is without merit. Hence, it was set aside and the appeal was allowed.