The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has referred the question whether refund can be denied to SEZ unit citing limitation to the larger bench.
The bench of M. Ajit Kumar (Technical Member) has recommended the case to a larger bench to examine the issue whether the SEZ Act will have an overriding effect over the levy under the Finance Act 1994 or only on the exemption notifications issued thereunder. Further, whether a refund claim filed based on a notification under FA 1994 being set aside in the SEZ area, will be subject to time bar/ unjust enrichment.
Table of Contents
Background – SEZ Unit
The appellant/assessee is in the business of manufacturing of brake systems and related parts for heavy vehicles. They are operating under the SEZ scheme in MEPZ Chennai.
The appellant filed a refund claim of service tax pertaining to the quarter October 2016 to December 2016 under Notification No. 12/2013-ST dated 01/07/2013 in respect of the service tax paid under RCM for the services received by them on which they are liable to remit the tax, like GTA and manpower recruitment supply agency service etc received by them on 28/03/2018.
After verification of the refund claims, the Ld. Original Authority rejected the total claim on the ground that it was time-barred. The appellant preferred an appeal before Ld. Commissioner (Appeals) who remanded the matter back to the Original Authority.
A Show Cause Notice was issued for non-production of invoices, discrepancy in refund claimed and service tax paid. After due process of law, the Original Authority again rejected the refund claim on the ground that the refund claim was filed beyond the stipulated period of one year as provided in Notification No. 12/2013-ST.
The appellant preferred an appeal before Commissioner (Appeals), who vide the impugned order rejected the appeal as the claims were hit by limitation.
Arguments – SEZ Unit
The assessee contended that the appellant is eligible for tax free procurement of input services from service providers for carrying out authorised operations in SEZ in terms of Section 26(1) of the Special Economic Zones Act, 2005 (SEZ Act). The refund claim for the period October 2016 to December 2016, is sought to be denied only on account of the one year limitation prescribed under Para 3(III)(e) of the Notification No. 12/2013-ST.
The assessee argued that in terms of Section 51 of the SEZ Act, the provisions of the Act being a special law, will have an overriding effect over other laws including the Finance Act, 1994 (FA 1994). The Order-in-Appeal may be set aside and the refund may be allowed with consequential relief.
Relevant Provisions
The SEZ Act is a special statute meant to promote exports and to attract foreign and domestic investment for export promotion and not a tax statute as it does not have a ‘charging’ section to levy (impose tax) or to assess tax (assessment) nor has a machinery to collect tax. Article 366(28) defines “taxation” to include “the imposition of any tax or impost, whether general or local or special.”
The SEZ Act does not seek to raise any money by taxation. Conceptually, a tax statute has four elements – (i) the nature of the tax which prescribes the taxable event attracting the levy; (ii) the person who is liable to pay tax; (iii) the rate at which the tax is paid; and (iv) the measure or value to which the rate will be applied for computing the liability.
Insofar as supplies for authorised operations of SEZ developers and units are concerned, section 26 of the SEZ Act overrides the charging sections of the Finance Act 1994, by virtue of section 51. Without such a legal authority, no tax or duty can be either levied or collected in view of article 265 of the Constitution of India. Since the SEZ unit is out of the purview of the Finance Act, 1994, the question of time bar nor the provisions for payment of interest under will apply to the refunds in question.
Hence the exemption notifications issued under the Finance Act, 1994 and the conditions stipulated there in are redundant because service tax was already exempted by Parliament by section 26 of the SEZ Act. Any conditions in such notifications are also, therefore, irrelevant and need not be fulfilled.
Conclusion
The tribunal has referred 4 questions to the larger bench.
Firstly, whether under the facts and circumstances of the case section 51 read with Section 7 and 26 of the SEZ Act has an overriding effect over the levy imposed under sections 66, 66A and section 66B of Chapter V of the Finance Act, 1994 and hence the refund claim is not subject to any time limit?
Secondly, whether in the light of rule 47(5) of ‘The Special Economic Zones Rules, 2006’, the provisions of refund under section 11B of the Central Excise Act 1944, are incorporated by reference in the SEZ Act, including the time limits stated therein, and will be applicable for processing a claim of refund of service tax paid by a SEZ unit, contrary to law?
Secondly, whether the law laid down by the judgement of the Hon’ble Supreme court in Mafatlal industries Ltd Vs Union of India and the Larger Bench of this Tribunal in Veer Overseas Ltd. v. CCE, Panchkula decided on 27 March, 2018, a claim for refund of service tax collected contrary to law is governed by the provision of Section 11B of the Central Excise Act 1944, as made applicable by rule 47 (5) of the SEZ Rules including the time limits stated therein, even in the case where Notification No. 12/2013-ST dated 01/07/2013 is set aside by the Telangana High Court, “in so far as they relate to Special Economic Zones”?
Lastly, whether refund can be sanctioned by Statutory Authorities, of service tax collected contrary to law, without specifying the provision of the Act or following the procedure stated therein, because the notification under which the amount was collected and the procedure prescribed for its grant, has been set aside?
The tribunal directed the Registry to place this file before the President to consider the constitution of a Larger Bench to decide the above questions of law.
Case Details
Case Title: ZF Commercial Vehicle Control System India Ltd. Versus Commissioner of GST & Central Excise
Case No.: Service Tax Appeal No.40489 of 2020
Date: 07.11.2024
Counsel For Appellant: Manasa
Counsel For Respondent: M. Selvakumar
