Custom, Excise & Service Tax Tribunal
Shapoorji Pallonji & Co Ltd vs Cce Nagpur- I on 25 February, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
MUMBAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 86395 of 2016
(Arising out of Order-in-Original No. 04/ST/2016/PC/NGP-I dated 29.03.2016
passed by the Principal Commissioner, Central Excise & Customs, Nagpur-I)
Shapoorji Pallonji & Company Limited .... Appellants
76, IRIS, Hindustan Colony
Wardha Road
Nagpur - 440 001.
Versus
Commissioner of Central Excise, Customs & S.Tax .... Respondent
Nagpur-I
Telangkhedi Road, Civil Lines
Nagpur - 440 001.
Appearance:
Shri. S.S. Gupta, Chartered Accountant for the Appellants
Ms. S. Varalakshmi, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL)
FINAL ORDER NO. A/85265/2025
Date of Hearing: 02.09.2024
Date of Decision: 25.02.2025
PER : M.M. PARTHIBAN
This appeal has been filed by Shapoorji Pallonji & Company Limited,
Nagpur (herein after referred to, for short, as "the appellants") assailing
the Order-in-Original No.04/ST/2016/PC/NGP-I dated 29.03.2016
(hereinafter referred to, for short, as "the impugned order") passed by the
Principal Commissioner, Central Excise & Customs, Nagpur-I.
2.1 The brief facts of the case are that the appellants herein isengaged in
the business of providing taxable services under Section 65 (105) of the
Finance Act, 1994. For this purpose the appellants have registered
themselves with the jurisdictional service tax authorities and have obtained
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service tax registration certificate No.AAACS6994CST020. The appellants
also avail CENVAT credit of central excise duty paid on inputs and capital
goods, as well as service tax paid on input services as per the provisions of
CENVAT Credit Rules, 2004 (for short, referred to as 'CCR').
2.2 During the course of audit conducted by the Department on the
books of account maintained by the appellants, the Department had
enquired about the appellant's availing of exemption benefit under
Notification No.12/2013-ST dated 01.07.2013. On scrutiny of the
documents and the books of accounts for the period October, 2013 to
March, 2015, the Department had interpreted that the appellants have not
fulfilled certain requirements for availing the duty exemption viz.,
conditions of the notification dated 01.07.2013, Special Economic Zone
Rules, 2005 and the circulars issued thereon. The Department had initiated
show cause notice proceedings for demand of CENVAT Credit availed by the
appellants on various grounds, the details of which are summarized below:
Period Notification Conditions/Requirement Reasons for confirmation of
No. reference not fulfilled by the demand in the impugned order
appellants as alleged by
the department
1 2 3 4
01.10.2013 12/2013-ST Approved list, Irregular availment of ab
to dated declaration in Form initio exemption. Conditions
30.03.2015 01.07.2013 A1& A2 certified by of proviso to para2 not
specified Officer not fulfilled. Additionally Forms
submitted. A-1, A-2 as per notification
not provided.
2.3 In adjudication of the SCN dated 07.10.2015for demand of service
tax of Rs. 2,88,80,985/- issued by the Department, the learned Principal
Commissioner in the impugned order dated 29.03.2016 had confirmed the
demand of service tax amounting to Rs. 2,57,03,974/- along with interest;
however, he extended the benefit of cum-tax-value of taxable services by
reducing the amount of demand to the extent of Rs. 31,77,011/-, and
imposed penalties under Section 76, 77 of the Finance Act, 1994.Feeling
aggrieved with the impugned Order, the appellants have filed this appeal
before the Tribunal.
3.1 Learned Counsel for the appellants submitted that the appellants have
availed exemption from payment of service tax in respect of output
services provided to SEZ in terms of Section 26 of the SEZ Act, 2005. The
said legal provision giving exemption of service tax read with Section 51
ibid provide overriding effect to any other law, which if it contradicts or
inconsistent to the extent it is provided in the SEZ Act. Further, he stated
that Rule 10 of the SEZ Rules, 2005 for giving permission for procurement
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of items is not applicable to their case, as these are meant for the purpose
of establishing of SEZ and not relevant for the exemption provided under
Section 26 ibid and therefore the confirmation of adjudged demands on
such basis is not sustainable.
3.2 Learned Counsel also submitted that the issues in dispute in the
present case viz., non-production of Form A-1 and Form A-2, non-
fulfilment of conditions prescribed in the notifications issued by the
department under the Customs/Central Excise/Finance Acts and thereby
denying the exemption from payment of service tax has been examined
by the Tribunal and the Hon'ble High Court in the following cases and it
was held that the demand of service tax is not sustainable. The said
decisions of the Tribunal/High Court have also been upheld by the Hon'ble
Supreme Court:
(i) Eclerx Services Limited Vs. Commissioner of CGST & C.Ex.,
Navi Mumbai - 2023 (72) G.S.T.L. 99 (Tri.-Mumbai) and upheld
by the Hon'ble Supreme Court in Civil Appeal No.549 of 2023
(ii) Cummins Turbo Technology Vs. Commissioner of Customs,
Central Excise & Central Tax, Indore - (2023) 12 Centax 334
(Tri.-Del.)
(iii) GMR Aerospace Engineering Ltd. Vs. Union of India - 2019
(312)G.S.T.L. 596 (A.P.) and upheld by the Hon'ble Supreme
Court in Special Leave Petition (Civil) Diary No.22140 of 2019
(iv) Hiranandani Builders Vs. Commissioner of Service Tax - VII,
Mumbai - 2023 (9) TMI 73 - CESTAT MUMBAI.
4. On the other hand, learned Authorised Representative for Revenue
reiterated the findings of the Principal Commissioner in the impugned
order, and submitted that in order to claim exemption, the appellants has
to provide the documents mentioning the name of the contractor, even
though it is supplied to SEZ and in the absence of the same, exemption
cannot be extended to them. Further, by citing the judgement of the
Hon'ble Supreme Court in the case of Commissioner of Customs
(Import),Mumbai Vs. Dilip Kumar and Company - 2018 (361) E.L.T. 577
(S.C.), he stated that exemption must be strictly complied with. In the
absence of approval letter given by the SEZ authorities failing to mention
the name of the appellants, such omission cannot be considered as
substantial compliance for availing the service tax exemption. Therefore,
he prayed that the appeal preferred by the appellants is liable to be set
aside.
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5. Heard both sides and perused the records of the case. We have also
perused the additional written submissions presented in the form of paper
books for this case.
6.1 The issue involved in this appeal is to determine whether the
appellants have rightly claimed exemption from payment of service tax
against Construction Service other than residential complex, including
commercial / industrial buildings or civil Structures, provided to developers
/ units of Special Economic Zone (SEZ), by observing various conditions
laid down in theNotification No.12/2013-ST dated 01.07.2013 applicable
during the relevant time, or is liable to pay service tax on said services
provided to developer or units or SEZ.
"Special Economic Zones Act, 2005
[28 of 2005]
An Act to provide for the establishment, development and management
of the Special Economic Zones for the promotion of exports
and for matters connected therewith or incidental thereto.
Be it enacted by Parliament in the Fifty-sixth Year of the Republic of India
as follows :--
CHAPTER I
PRELIMINARY
Short title, extent and commencement.
1. (1) This Act may be called the Special Economic Zones Act, 2005.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government may,
by notification in the Official Gazette, appoint, and different dates† may
be appointed for different provisions of this Act and any reference in any
such provision to the commencement of this Act shall be construed as a
reference to the coming into force of that provision.
xxx xxx xxx xxx
Exemption from taxes, duties or cess.
7. Any goods or services exported out of, or imported into, or procured
from the Domestic Tariff Area by,--
(i) a Unit in a Special Economic Zone; or
(ii) a Developer.
shall, subject to such terms, conditions and limitations, as may be
prescribed, be exempt from the payment of taxes, duties or cess under
all enactments specified in the First Schedule.
xxx xxx xxx xxx
CHAPTER VI
SPECIAL FISCAL PROVISIONS FOR SPECIAL ECONOMIC ZONES
Exemptions, drawbacks and concessions to every Developer and
entrepreneur.
26. (1) Subject to the provisions of sub-section (2), every Developer and
the entrepreneur shall be entitled to the following exemptions, drawbacks
and concessions, namely:--
(a) exemption from any duty of customs, under the Customs Act, 1962
(52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other
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law for the time being in force, on goods imported into, or services
provided in, a Special Economic Zone or a Unit, to carry on the
authorised operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962
(52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other
law for the time being in force, on goods exported from, or services
provided, from a Special Economic Zone or from a Unit, to any place
outside India;
(c) exemption from any duty of excise, under the Central Excise Act,
1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any
other law for the time being in force, on goods brought from Domestic
Tariff Area to a Special Economic Zone or Unit, to carry on the authorised
operations by the Developer or entrepreneur;
(d) drawback or such other benefits as may be admissible from time to
time on goods brought or services provided from the Domestic Tariff Area
into a Special Economic Zone or Unit or services provided in a Special
Economic Zone or Unit by the service providers located outside India to
carry on the authorised operations by the Developer or entrepreneur;
(e) exemption from service tax under Chapter V of the Finance Act, 1994
(32 of 1994) on taxable services provided to a Developer or Unit to carry
on the authorised operations in a Special Economic Zone;
(f) exemption from the securities transaction tax leviable under section
98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable
securities transactions are entered into by a non-resident through the
International Financial Services Centre;
(g) exemption from the levy of taxes on the sale or purchase of goods
other than newspapers under the Central Sales Tax Act, 1956 (74 of
1956) if such goods are meant to carry on the authorised operations by
the Developer or entrepreneur.
(2) The Central Government may prescribe the manner in which, and the
terms and conditions subject to which, the exemptions, concessions,
drawback or other benefits shall be granted to the Developer or
entrepreneur under sub-section (1).
xxx xxx xxx xxx
Act to have overriding effect.
51. The provisions of this Act shall have effect notwithstanding anything
inconsistent therewith contained in any other law for the time being in
force or in any instrument having effect by virtue of any law other than
this Act."
SEZ Rules, 2006
"10. Permission for procurement of items. - The Approval Committee may
permit goods and services to carry on the operations authorized under
rule 9:
Provided that for the Special Economic Zones set up by the Central
Government, the goods and services required for the authorized
operations may be approved by the Board:
Provided further that exemptions, drawbacks and concessions on the
goods and services allowed to a Developer or Co-developer, as the case
may be, shall also be available to the contractors including
subcontractors appointed by such Developer or Codeveloper, and all the
documents in such cases shall bear the name of the Developer or
Codeveloper along with the contractor or sub-contractor and these shall
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be filed jointly in the name of the Developer or Co-developer and the
contractor or sub- contractor, as the case may be:
Provided also that the Developer or Co-developer, as the case may be, or
the Special Economic Zone Unit shall be responsible and liable for proper
utilization of such goods in all cases."
We also find that the provisions relating to Special Economic
Zones (SEZ) was initially provided under the Customs Act, 1962 vide
Chapter X-A under Sections 76A to 76N ibid, which was omitted with
effect from 11.05.2007 under Section 90 of the Finance Act, 2007
(Act 22 of 2007), upon bringing a separate legislation governing the
SEZs i.e., SEZ Act, 2005.
Customs Act, 1962
Chap. X-A (containing Sections 76-A to 76-N)
omitted by Act 22 of 2007,
Section 99 (w.e.f.11-5-2007). Prior to its omission, Chap. X-A read as
under:"
CHAPTER X-A. SPECIAL PROVISIONS RELATING TO SPECIAL ECONOMIC
ZONE
76-A. Notification of special economic zone.-The Central Government may,
by notification in the Official Gazette, specify special economic zones
comprising specifically delineated areas where any goods admitted shall be
regarded, insofar as duties of customs are concerned, as being outside the
customs territory of India as provided in this Chapter.
76-B. Application of provisions.-The provisions of this Chapter and other
Chapters shall apply to goods admitted to a special economic zone, but in
the event of conflict between the provisions of this Chapter and other
Chapters, the provisions of this Chapter shall prevail.76-C. Establishment
and control.-
(1) The Central Government may make rules specifying the requirements
relating to goods or class of goods admissible to a special economic zone,
the nature of operations to which such goods or class of goods may be
subjected to, the conditions to be fulfilled and the procedures to be followed
in this regard.
(2) The Board may specify, in the regulations made in this behalf,
arrangements for customs control in a special economic zone.
(3) The proper officer shall have the right to carry out checks, at any time,
on the goods kept or stored in a special economic zone.76-D. Admission of
goods.-Subject to such conditions as may be specified in the rules made in
this behalf, any goods imported directly from outside India or procured from
within India shall be authorised for admission to a special economic
zone.76-E. Exemption from duties of customs.-Without prejudice to the
provisions of sections76-F, 76-G and 76-H, any goods admitted to a special
economic zone shall be exempt from duties of customs.
76-F. Levy of duties of customs.-Subject to the conditions as may be
specified in the rules made in this behalf,(a) any goods admitted to a
special economic zone from the domestic tariff area shall be chargeable to
export duties at such rates as are leviable on such goods when exported;(b)
any goods removed from a special economic zone for home consumption
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shall be chargeable to duties of customs including anti-dumping,
countervailing and safeguard duties under the Customs Tariff Act, 1975 (51
of 1975), where applicable, as leviable on such goods when imported;
and(c) the rate of duty and tariff valuation, if any, applicable to goods
admitted to, or removed from, a special economic zone shall be the rate
and tariff valuation in force as on the date of such admission or removal, as
the case may be, and where such date is not ascertainable, on the date of
payment of the duty.
76-G. Authorised operations.-All goods admitted to a special economic zone
shall undergo such operations including processing or manufacturing as may
be specified in the rules made in this behalf.
76-H. Goods utilised within a special economic zone.-(1) The Central
Government may make rules in this behalf to enumerate the cases in which
goods to be utilised inside a special economic zone may be admitted free of
duties of customs and lay down the requirements which shall be fulfilled.(2)
Goods utilised contrary to the provisions of rules made under sub-Section
(1) shall be chargeable to duties of customs in the same manner as
provided under clause (b) of Section 76-F as if they have been removed for
home consumption.
76-I. Drawback on goods admitted to a special economic zone.-Any goods
admitted to a special economic zone from the domestic tariff area for the
purposes authorised under this Chapter shall be eligible for drawback under
Section 75 as if such goods are export goods for the purposes of that
section.
76-J. Duration of stay.-Any goods admitted to a special economic zone shall
not be allowed to remain within such zone beyond such time as may be
specified in the rules made in this behalf.
76-K. Security.-Any goods admitted free of duty to a special economic zone
or goods under transshipment to and from such zone without payment of
duty shall be subject to execution of such bond and such surety or security
as may be specified in the rules made in this behalf.
76-L. Transfer of ownership.-Any goods admitted to, or produced or
manufactured in, a special economic zone shall be allowed for transfer of
ownership subject to such conditions as may be specified in the rules made
in this behalf.
76-M. Removal of goods.-Any goods admitted to, or produced or
manufactured in, a special economic zone may be removed in accordance
with such procedure as may be specified in the rules made in this behalf.
76-N. Closure of a special economic zone.-In the event of closure of a
special economic zone by the Central Government, by notification in the
Official Gazette, the goods admitted to, or produced or manufactured in,
such zone shall be removed within such time and in such manner as may be
specified in the rules made in this behalf." .
-*Chap. X-A inserted by Act 20 of 2002, Section 126 (w.e.f.15.8.2003).
8.2 On plain reading of the above said legal provisions of the SEZ
Act,2005 and the Customs Act, 1962, it transpires that the Chapter X-A
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providing for special provisions relating to SEZ were omitted or removed
from the Customs Act, 1962 consequent to the Parliament enacting a
special legislation viz., SEZ Act, 2005. Moreover, in order to provide more
clarity and purpose of such separate legislation for SEZ, a specific
Section51 of the said Act of 2005 has provided a non obstante clause
stating that the provisions of SEZ Act, 2005 shall have the overriding
effect, notwithstanding anything inconsistent therewith, if any, contained in
any other law for the time being in force. Thus, if an exemption is provided
under Section 26 of the SEZ Act, 2005, then the same cannot be taken
away by prescribing certain conditions elsewhere in any other law or
notification issued thereunder, which is contrary to the legal provisions
made therein.
9.1 We find that the dispute in respect of similar issue relating to
exemption from payment of service tax in respect of services provided to
SEZ have been dealt with in the case of GMR Aerospace Engineering
Limited (supra) by the Hon'ble Andhra Pradesh High Court by holding that
standalone exemptions under Section SEZ law are not subject to provisions
of any other law, including Finance Act, 1994, and therefore such
exemption cannot be denied for mere non-filing forms, as these are not
required under SEZ law. The relevant paragraphs of order of the Hon'ble
High Court in the above case is extracted and given below:
"16. That takes us to the main contention revolving around the SEZ
Act, 2005, SEZ Rules, 2006, Finance Act 1994 and the notifications
issued by the Government. Before looking at the interplay of all these, it
may be useful to first take note of the scheme of the Act. The broad
scheme and the features of the SEZ Act, 2005 was taken note of by a
Division Bench of the Madras High Court to which one of us (VRSJ) was a
party, in Nokia India Sales Pvt. Ltd. v. the Assistant Commissioner (CT),
Sriperumbudur Assessment Circle, Chennai - 2017 (101) VSP 361
(Mad)......
18. In the light of the above admitted facts, the only question that
arises for consideration is as to whether the availability of exemptions
under Section 26 of the SEZ Act would depend not only upon the terms
and conditions prescribed under Section 26(2), but also upon the terms
and conditions prescribed in the notifications issued under various
enactments such as Customs Act, 1962, Customs Tariff Act, 1975,
Central Excise Act, 1944, Central Excise Tariff Act, 1985, Finance Act,
1994 and Central Sales Tax Act, 1956 etc., enlisted in clauses (a) to (g)
of sub-section (1) of Section 26 of the Act.
20. In order to find an answer to this question, one must understand in
conceptual terms, what a Special Economic Zone is. As pointed out by
the Madras High Court in Nokia India Sales, a SEZ (1) is a territory
outside the Customs Territory of India for the purpose of undertaking
authorized operations and (2) is deemed to be a port, in land container
depot, land stations and land customs station under Section 7 of the
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Customs Act, 1962. This is by virtue of Section 53 of SEZ Act, 2005.
Keeping this core concept in mind, let us now go to the provisions of the
Act. Section 7 of the Act exempts from payment of taxes, duties or cess,
under all enactments specified in the First Schedule, any goods or
services exported out of or imported into or procured from Domestic
Tariff Area, by a unit in a SEZ or a developer. But Finance Act, 1994 is
not one of the enactments specified in the First Schedule. Therefore,
Section 7 has no application to the case on hand.
21. However, Section 26(1) specifically allows exemptions, drawbacks
and concessions to every developer and entrepreneur. These exemptions
are confined to the enactments listed in clauses (a), (b), (c), (e), (f) and
(g). Section 26 in its entirety reads as follows :.....
22. It may be noted that sub-section (1) of Section 26 begins with the
words "subject to the provisions of sub-section (2)". Sub-section (2)
authorizes the Central Government to prescribe the manner in which and
the terms and conditions subject to which exemptions shall be granted to
the Developer or entrepreneur under sub-section (1).
23. As rightly pointed out by Sri S. Niranjan Reddy, Learned Senior
Counsel appearing for the petitioner, the word "prescribe" appearing in
sub-section (2) of Section 26 has to be understood with reference to the
definition of the word "prescribed" appearing in Section 2(w) of the SEZ
Act, 2005. Section 2(w) of the Act reads as follows :
"prescribed" means prescribed by rules made by the Central
Government under this Act."
24. Therefore, the terms and conditions subject to which the
exemptions are to be granted under sub-section (1) of Section 26 should
be prescribed by the Rules made by the Central Government under the
SEZ Act, 2005. Being conscious of this fact, the executive has
incorporated Rule 22 in the SEZ Rules, 2006 issued in exercise of the
power conferred by Section 55 of the SEZ Act. It is not necessary to
extract Rule 22, since there is no dispute about the fact (1) that the
petitioners have complied with the prescriptions contained in Rule 22 of
the SEZ Rules, 2006 and (2) that Rule 22 of the SEZ Rules, 2006 does
not stipulate the filing of forms A1 and A2 as prescribed in the three
notifications issued under Section 93 of the Finance Act, 1994.
25. In other words, the 5th respondent does not dispute the fact that
the petitioners have fulfilled the terms and conditions stipulated in Rule
22 of the SEZ Rules, 2006 and that if those Rules are considered on a
stand alone basis, the petitioners would be entitled to the exemptions.
26. Having taken note of the provisions of the SEZ Act and Rules, let us
have a look at the Finance Act and the relevant notifications. Section 93
of the Finance Act, 1994 reads as follows :.....
28. The SEZ Act, 2005 is also a parliamentary enactment issued later in
point of time to the Finance Act, 1994 and Section 51 of the Act declares
that the provisions of the SEZ Act, 2005 shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time
being in force or in any instrument having effect by virtue of any law
other than this Act. Section 51 reads as follows :
"51. Act to have overriding effect. - The provisions of this Act
shall have effect notwithstanding anything inconsistent therewith
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contained in any other law for the time being in force or in any
instrument having effect by virtue of any law other than this Act."
29. The contention of Smt. Sundari R. Pisupati, Learned Senior
Standing Counsel is that there is no inconsistency between (i) the terms
and conditions prescribed in the notifications issued under Section 93 of
the Finance Act, 1994 and (ii) the terms and conditions prescribed in
Rules 22 and 31 of the SEZ Rules, 2006, and that therefore, Section 51
of the SEZ Act, 2005 cannot be pressed into service. But this contention
is unacceptable.
30. This is for the reason that Section 26(1) of the SEZ Act made the
entitlement to certain exemptions subject to provisions of sub-section (2)
of Section 26. Section 26(1) did not make the entitlement of a Developer
to certain exemptions, subject to the provisions of something else other
than the provisions of sub-section (2). Therefore, the 5th respondent
cannot read Section 26(1) to mean that the exemptions listed therein are
(1) subject to the provisions of sub-section (2) of Section 26, and (2)
also subject to the terms and conditions prescribed in the Customs Act,
1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the
Central Tariff Act, 1985 and the Finance Act, 1994. This is especially so,
since the authority of the Central Government to prescribe the terms and
conditions subject to which exemptions may be granted under Section
26(1), flows only out of sub-section (2) of Section 26. The
word "prescribe" is verb. Generally no enactment defines the
word "prescribe". But the SEZ Act 2005 defines the
word "prescribe" under Section 2(w) to mean the rules framed by the
Central Government under the SEZ Act, 2005. The space is also not left
unoccupied, as the Central Government has issued a set of Rules known
as "the Special Economic Zones Rules, 2006", wherein the Central
Government has prescribed the terms and conditions for grant of
exemptions under Rule 22. Therefore, there is no question of comparing
the terms and conditions prescribed in Rule 22 with the terms and
conditions prescribed in the notifications issued under any one of five
enactments listed in Section 26(1) to find out whether there was any
inconsistency.
31. Support can be drawn for the above interpretation, from Section 50
of the SEZ Act, 2005 also. Section 50 of the SEZ Act, 2005 enables State
Governments to enact laws for the grant of exemption from state taxes,
levies and duties. Since a Central Law cannot provide for exemption from
the levy of State taxes, Section 50 merely enables the State
Governments to enact laws.
32. A combined reading of Sections 7, 26 and 50 of the SEZ Act, 2005,
would show that SEZ Act, 2005 speaks of three different types of
exemptions. They are, -
(1) exemption from payment of taxes under the enactments specified
in the First Schedule, in respect of goods and services exported out of, or
imported into or procured from a DTA by a unit in a Special Economic
Zone or a Developer under Section 7,
(2) exemption from payment of duties under the Customs Act, 1962,
Customs Tariff Act, 1975, Central Excise Act, 1994, Central Excise Tariff
Act, 1985, Finance Act, 1994, Finance (No. 2) Act, 2004 and Central
Sales Tax Act, 1956, covered by Section 26 (1); and
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(3) exemption from payment of state taxes, levies and duties covered
by Section 50, provided there is a state enactment to the said effect.
33. The word "prescribe" is used in the present tense in Section 26(2)
and in the past tense in Section 7. Both will have the same meaning as
assigned to the word under Section 2(w). The moment a set of rules is
issued either in respect of matters covered by Section 7 or in respect of
matters covered by Section 26(1), there is no scope for invoking any
other law for imposing any other condition.
34. The benefit of exemptions granted under the notifications issued
under Section 93 of the Finance Act, 1994, are available to any one and
not necessarily confined to a unit in a special economic zone. Section 93
of the Finance Act, in that sense is a general power of exemption
available in respect of all taxable services. But, Section 26(1) is a special
power of exemption under a special enactment dealing with a unit in a
special economic zone. Therefore, the notifications issued under Section
93 of the Finance Act, 1994 cannot be pressed into service for finding out
whether a unit in a SEZ qualifies for exemption or not......
42. But, we do not agree. Though the "section title" to Section 26 reads
as "exemptions, drawbacks and concessions", clauses (a) to (g) except
clause (d) speak only about exemptions. It is only clause (d) of sub-
section (1) of Section 26, which speaks about drawbacks and such other
benefits. In so far as exemption is concerned, sub-section (1) makes the
entitlement of a Developer to exemption, subject only to the provisions of
sub-section (2) of Section 26. Sub-section (2) of Section 26 empowers
the Central Government to prescribe both the manner in which as well as
the conditions subject to which exemptions may be granted. Therefore,
the area relating to exemption is completely occupied by the rules.
43. It is only the issues relating to refund, demand, adjudication, review
and appeal, which were left unoccupied by the SEZ Act and the Rules
framed thereunder. Realising the vacuum in respect of these specific
areas, sub-rule (5) was inserted under Rule 47. Sub-rule (5) of Rule 47
makes a reference to the provisions of the three enactments namely
Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1994 and
the Rules made thereunder and the notifications issued thereunder. It is
by virtue of this sub-rule (5) that the authorities can fall back upon the
Rules and notifications issued under those three enactments. The very
fact that sub-rule (5) was inserted would show, that but for its insertion,
the respondents cannot fall back upon the Rules framed under the
Customs Act etc., for dealing with a question of refund, demand,
adjudication etc.
44. The issue can be looked at from another angle also. If sub-rule (5)
of Rule 47 had also included the procedure for grant of exemption within
its purview, then the stand taken by the Department would be perfectly
valid. The very fact that sub-rule (5) of Rule 47 made the Rules and
notifications issued under certain Acts applicable only to issues of refund,
demand etc., would show that Rules 22 and 31 have independent legs to
stand.
45. Therefore, the writ petition is allowed, the Order-in-Original dated
20-2-2018 is set aside and the notifications in question in so far as they
relate to Special Economic Zones, are set aside. There shall be no order
as to costs."
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9.2 We further find that in the Special Leave Petition filed against the
above order of the Hon'ble High Court by the department in SLP (Civil)
Diary No.22140/2019, the Hon'ble Supreme Court had dismissed the SLP
filed by the department, by upholding the order of the Hon'ble High Court.
The extract of the said judgement dated 28.07.2019 is given below:
In view of the detailed analysis and categorical decision of the Hon'ble
High Court of Andhra Pradesh which was upheld by the Hon'ble Supreme
Court, the issues under dispute in the present case is no more open to
debate, and a different view cannot be taken by this Tribunal.
13
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9.3. We also note that the Hon'ble Supreme Court had dealt with the
issue of "What is the interpretative rule to be applied while interpreting a
tax exemption provision/notification when there is an ambiguity as to its
applicability with reference to the entitlement of the assessee or the rate
of tax to be applied?" in the case of Dilip Kumar and Company (supra).
We find that in the present case, the question of ambiguity in
interpretation are not the issue to be dealt, and therefore we do not find
force in the argument of learned AR, that the same should apply to the
present case.
10. We also find that the Co-ordinate Bench of the Tribunal in the case
of Cummins Turbo Technology (supra) have held that there is no legal
authority to levy and collect central excise duty, customs duty or service
tax for goods or services supplied for authorised operations of SEZ
developers and units covered by Section 26 of the SEZ Act, 2005. Without
such legal authority, no tax or duty can be either levied or collected in
view of Article 265 of Constitution of India, 1950. Therefore, the Tribunal
have held that there is no need for exemption notifications under Central
Excise Act, 1944, Customs Act, 1962 and Finance Act, 1994, nor is it
necessary to fulfil of conditions under exemption notifications, if any,
issued. The relevant paragraph of the said order is extracted and given
below:
"23. While the SEZ Act itself provided for exemption from service tax (as
well as Central Excise duty and Customs duty), exemption notifications
were also issued by the Government under the respective laws. These
exemption notifications were also issued with some conditions. Thus,
there is duplication inasmuch as the goods and services provided to
authorised operations of developers and units in the SEZs are exempted
from Customs duty, Central Excise duty and the service tax by the SEZ
Act itself (subject to the manner which may be prescribed) and there are
also exemption notifications under the respective tax laws which are also
subject to some conditions. The exemption notification in dispute in this
case is service tax exemption notification ST-40/2012 dated 20-6-2013.
24. This contradiction and duplication of exemption under the two
provisions viz. SEZ Act and Rules and the exemption notifications under
the Finance Act, 1994 were discussed at length by this bench in case of
DLF Assets 2021 (45) G.S.T.L. 176 (Tribunal), the relevant extract of
which is reproduced below :
"10. According to the appellant, as the aforesaid services were utilized for
authorized operations by the recipient SEZ units, there was no necessity to pay
any service tax. The Department, however, alleged that though the exemption
provided under the SEZ Act is contained in the Notification dated March 3, 2009,
but the appellant did not follow the conditions prescribed therein and, therefore,
was liable to pay service tax on renting of immovable property services to SEZ
units. The Department also alleged that since the appellant had classified
signage as sale of space or time for advertisement, it was not entitled to claim
exemption.
14
ST/86395/2016
11. In order to appreciate the contentions advanced by learned Counsel for the
appellant and the learned Authorized Representative of the Department, it will
be appropriate to refer to the relevant provisions. Section 26 of the SEZ Act
deals with exemptions, drawbacks and concessions to every Developer and
entrepreneur. The relevant provisions are reproduced below:
"26. Exemptions, drawbacks and concessions to every Developer and
entrepreneur.--
(1) Subject to the provisions of sub-section (2), every Developer and the
entrepreneur shall be entitled to the following exemptions, drawbacks and
concessions, namely:--
(a) To (d) ** ** **
(e) exemption from service tax under Chapter V of the Finance Act,
1994 (32 of 1994) on taxable services provided to a Developer or
Unit to carry on the authorized operations in a Special Economic
Zone;
(f) to (g) ** ** **
(2) The Central Government may prescribe the manner in which, and the terms
and conditions subject to which, the exemptions, concessions, drawback or other
benefits shall be granted to the Developer or entrepreneur under sub-section
(1)."
12. Section 51 of the SEZ Act further provides overriding effect to the provisions
of the SEZ Act and it is reproduced below:
"51. Act to have overriding effect -- The provisions of this Act shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or in any instrument having effect by virtue of any law
other than this Act."....
25. Thus, the legal position is that SEZ Act overrides any other law
because of section 51 of the SEZ Act. The question is what part of the tax
law have been overridden by the SEZ Act. To answer this question, we
proceed to examine the requirement under the Constitution of India to
levy taxes and the relevant legal provisions of the Central Excise Act and
Customs Act and Chapter V of the Finance Act, 1994 under which Service
Tax is levied.
26. Taxes can be levied only as per article 265 of the Constitution of
India which reads as follows:
265. Taxes not to be imposed save by authority of law.--No tax shall be
levied or collected except by authority of law.
27. This authority of law to levy and collect taxes is in the form of
charging sections of the Acts- such as section 3 of the Central Excise Act,
1944, section 12 of the Customs Act, 1962 and sections 66, 66A and
section 66B of Chapter V of the Finance Act, 1994 (for collection of
Service Tax). While section 66 provides for levy of service tax on forward
charge basis by the service provider, section 66A provides for charge of
service on reverse charge basis by the service recipient in case of certain
services. Section 66B provides for levy of service tax on all services other
than those in the negative list after 2012.
28. The levy and collection of these taxes and duties are further modified
by some machinery provisions of these Acts, including those which enable
the Government to issue exemption notifications. The contradiction is
between these three charging sections under which duties or service tax
are levied and section 26 of the SEZ Act as per which they are exempted.
Section 51 of the SEZ Act overrides the provisions of the other Acts and
therefore, service tax is always exempted for the services provided to
15
ST/86395/2016
developers and units in SEZ regardless of any provisions of the Finance
Act, 1994. Section 26 of the SEZ Act reads as follows:
26. (1) Subject to the provisions of sub-section (2), every Developer
and the entrepreneur shall be entitled to the following exemptions,
drawbacks and concessions, namely: -
(a) exemption from any duty of customs, under the Customs Act, 1962
or the Custom Tariff Act, 1975 or any other law for the time being in
force, on goods imported into, or service provided in, a Special
Economic Zone or a Unit, to carry on the authorised operations by the
Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962
or the Customs Tariff Act, 1975 or any other law for the time being in
force, on goods exported from, or services provided, from a Special
Economic Zone or from a Unit, to any place outside India;
(c) exemption from any duty of excise, under the Central Excise Act,
1944 or the Central Excise Tariff Act, 1985 or any other law for the time
being in force, on goods brought from Domestic Tariff Area to a Special
Economic Zone or Unit, to carry on the authorised operations by the
Developer or entrepreneur
..
(e) exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone; ...
29. Section 51 of the SEZ Act states that the provisions of SEZ Act override any other provisions of other laws. It reads as follows:
51. (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
30. Thus, insofar as supplies for authorised operations of SEZ developers and units are concerned, section 26 of the SEZ Act overrides the charging sections in all the three Acts.
31. The charging sections, having been overridden by the SEZ Act, no legal authority to levy and collect central excise duty, customs duty or service tax for goods or services supplied for authorised operations of SEZ developers and units covered by section 26 remains. 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.
32. Therefore, there is no need for any exemption notifications under any of these three Acts, nor is it necessary to fulfil any of the conditions laid down in the exemption notifications, if any, issued for the purpose. Thus, 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, 1994 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 are therefore, redundant because, the Parliament itself has, through the SEZ Act, overridden the charge in the other laws.
33. The status of exemption notifications which are issued when the tax that is sought to be levied is out of the ambit of charging section itself was considered by the Supreme Court in the case of Larsen & Toubro14.
16ST/86395/2016 The case before the Supreme Court, in brief, was as follows. Service tax was levied under Chapter V of the Finance Act, 1994 under section 66 on taxable services. The list of taxable services was defined under section 65(105) and this list was expanded from time to time. If the taxable service was provided as a part of a works contract which involved both rendering the service and transfer or deemed transfer of goods, exemption notifications were issued by the Government towards abatement of the value of the goods used in the services. Later, on 1-6- 2007, works contract service, itself was introduced as a service. The question before the Supreme Court was whether works contract service could have been taxed under various other heads prior to this date. The Supreme Court held that there was no charge on works contract service prior to 1-6-2007 because works contracts services were a separate specie of contract known to commerce and there was no levy on such contracts prior to 1-6-2007. It was pleaded on behalf of the Revenue that abatements were given through various exemption notifications prior to 1-6-2007. The Supreme Court held as follows:
43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services.
44. We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax "levied" by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of.
34. In view of the aforesaid legal position, the exemption notifications issued under the Finance Act, 1994 are redundant because service tax was already exempted by the Parliament by section 26 of the SEZ Act. Any conditions in such notifications are also, therefore, irrelevant and need not be fulfilled. Any amount paid as representing service tax either in the services provided directly to the SEZ units under invoices issued by the service providers or indirectly through the ISD invoices issued by the input service distributor are merely deposits and need to be refunded. They are like the amount deposited during investigations or before succeeding in appeals against demands or fine or penalty which are subsequently set aside. The question is, therefore, answered in favour of the appellant and the appellant is eligible to refund of service tax."
11.1 We also find that the Tribunal in the case of Eclerx Services Ltd.(supra) have held that SEZ unit was eligible for exemption from service tax on services received by it and in view of the overriding effect of SEZ law, denial of exemption on the grounds of procedural infirmities is not sustainable. The relevant paragraphs of the said order is extracted and given below:
"6. The issue to be decided on this appeal is plain and simple enough:
whether the notifications relied upon by the adjudicating authority can invalidate exemption accorded under 17 ST/86395/2016 '26. (1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely: -
(a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India;
(c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;
(d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur;
(e) exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone;
(f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre;
(g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.
(2) The Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1).
of Special Economic Zones Act, 2005. It is unquestionably clear from the '51. (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.' of Special Economic Zones Act, 2005 that no other law can prevail over it.
7. It is on record that the required documentation was not available for the entire period of the dispute but, at the same time, it cannot be denied that at some point, the eligibility did exist. The procedural infirmities, for a shorter or longer time, does not in any way supplant the exemption accorded to the impugned supply of services. Furthermore, the findings of the adjudicating authority do not arrive at a conclusion that, but for the said procedural infirmities, the eligibility of the appellant to render such services without payment of tax was in question. In the light of decision cited supra, the overriding nature of the exemption afforded by section 26 of Special Economic Zones Act, 2005 and the breach of conditions being procedural, we have no hesitation in setting aside the demand pertaining to the rendering of services to M/s Credit Suisse Service (India) Pvt. Ltd.
8. The next issue concerns the finding that the services had been rendered in India and consumed in India. The definition of'(m) "export" means -
18ST/86395/2016
(i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or
(ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or
(iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone:' in Special Economic Zones Act, 2005 is substantially different from that in the rules which delineate 'exports' from 'domestic supply' in the scheme of service tax law and, in view of section 51 of Special Economic Zones Act, 2005, have to be read in the context of the exemption afforded by section 26 of Special Economic Zones Act, 2005 and not in terms of Finance Act, 1994. Consequently the prism through which the adjudicatory perception has been enunciated does not apply to the facts of the service rendered by the appellant. Accordingly, the demand for allegedly rendering of services within India does not sustain."
11.2 We further find that in the Civil Appeal filed by the department against the aforesaid order of the Tribunal holding that exemption provided under Section 26 of the SEZ Act, 2005 has over riding effect and that the breach of conditions is procedural, the Hon'ble Supreme Court had dismissed the appeal filed by the department, by upholding the order of the Tribunal. The copy of the said judgement of the Hon'ble Supreme Court is extracted and given below:
19ST/86395/2016
12. In view of the foregoing discussions and analysis, and on the basis of the judgements delivered by the Hon'ble Supreme Court referred above, we are of the considered view that exemption benefits extended to taxable services provided to SEZ under Section 26 of the Special Economic Zones Act, 2005 cannot be denied on the ground that certain procedures have not been followed or certain conditions prescribed in the notification have not been fulfilled.
13. Therefore, the impugned order is liable to be set aside to the extent it had confirmed the adjudged demands proposed in the SCNs. Accordingly, by setting aside the impugned order dated 29.03.2016, the appeal filed by the appellants is allowed in their favour.
(Order pronounced in open court on 25.02.2025) S.K. MOHANTY MEMBER (JUDICIAL) M.M. PARTHIBAN MEMBER (TECHNICAL) Sinha