One Refund Claim Per Quarter Rule Does Not Restrict Claims To Tax Paid During That Quarter: CESTAT Chennai

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has held that the requirement to file only one refund claim for every quarter does not restrict an SEZ unit from including service tax paid outside that quarter in its claim.

The notification exempts specified services received by Special Economic Zone (SEZ) units and used for their authorised operations from service tax. Where the exemption is claimed by way of refund, the unit must file only one claim for each quarter. However, this does not mean that the claim can include only tax paid during that quarter.

A bench comprising Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao made the observation while allowing appeals filed by ATC Tires Pvt. Ltd., a unit in the SIPCOT Special Economic Zone at Gangaikondan, Tamil Nadu.

“Paragraph 3(III)(f) says that only one claim of refund shall be submitted for every quarter. It limits the number of claims. It does not say that a claim for a quarter may comprise only tax paid during that quarter,” the Tribunal observed.

The Tribunal set aside the rejection of refund claims amounting to ₹1,26,60,977 and directed the jurisdictional Assistant Commissioner to sanction the amount, along with applicable interest, within three months of receiving the order.

ATC Tires manufactures tyres at its unit in the SIPCOT SEZ. Its corporate office in Mumbai is registered as an Input Service Distributor (ISD) and distributes service tax attributable to the SEZ unit through ISD invoices.

The company filed a refund claim of ₹1,36,46,343 for the April-June 2015 quarter on November 16, 2015, and another claim of ₹1,27,47,749 for the July-September 2015 quarter on March 30, 2016.

The department rejected portions of the claims. The Commissioner (Appeals) upheld the rejection of ₹1,23,35,198 on the ground that service tax paid before or after the relevant quarter could not be included in a refund claim for that quarter.

The appellate authority also denied ₹3,25,779 relating to accommodation services, air travel agent services and club membership services, on the ground that the company had not furnished Form A-1.

The Tribunal disagreed with the department's interpretation of the quarterly refund requirement. It noted that the provision requires an SEZ unit to submit only one refund claim for every quarter. It does not state that the claim can include only service tax paid during that particular quarter.

The Tribunal also noted that the disputed amounts had been distributed to the SEZ unit by the Mumbai office through ISD invoices dated June 30, 2015 and September 30, 2015. Until the amounts were distributed through these invoices, they could not have been included in earlier refund claims filed by the unit.

It further observed that the essential requirements for claiming the exemption were that the services should be specified services, should be used for authorised operations, and service tax should have been paid. None of these requirements was disputed in relation to the amounts distributed through the ISD invoices.

The Tribunal held that the requirement to file one claim per quarter was procedural and could not be interpreted as imposing an additional restriction on the exemption available to SEZ units.

On the rejection of ₹3,25,779, the Tribunal noted that the Commissioner (Appeals) had already found that the services in question were included in the list of services approved by the Unit Approval Committee for the SEZ unit.

The amount comprised ₹14,393 towards accommodation services, ₹73,094 towards air travel agent services and ₹2,38,292 towards club membership.

The Tribunal noted that the approved list included accommodation services, air travel agent services and membership of a club or association. However, club membership was permitted for the purpose of obtaining a registration-cum-membership certificate from an export promotion council. The Revenue had not challenged the finding that the services were included in the approved list.

It also observed that the objection relating to non-submission of Form A-1 had not been raised in the show cause notice or the original adjudication order. The company had therefore not been given an opportunity to respond to that ground.

Relying on the decision in GMR Aerospace Engineering Ltd., the Tribunal held that the absence of Forms A-1 and A-2 could not be a ground to deny the exemption where the services were approved by the Unit Approval Committee and used for authorised operations.

The Tribunal also rejected the department's limitation objection concerning ₹48,82,536.

The department had sought to calculate the one-year limitation period from the dates on which the Mumbai office paid the service providers between April and October 2014. The Tribunal held that the period had to be reckoned from the date on which the ISD distributed the amount to the SEZ unit through its invoice dated June 30, 2015.

It reasoned that the SEZ unit's entitlement to the refund arose only when the amount was distributed to it through the ISD invoice. Calculating limitation from the date on which the Mumbai office paid the service providers would mean that the limitation period could begin, or even expire, before the amount refundable to the SEZ unit was ascertained.

The tribunal observed, “To reckon one year from the head office's payment would make the period begin, and possibly end, before the amount refundable to the SEZ unit is even ascertained. A notification which itself prescribes distribution before refund cannot be read so as to defeat the refund it grants. The period must therefore run from the date of the ISD invoice, 30.06.2015, and the claim of 16.11.2015 is well within one year of it.”

The Tribunal accordingly set aside the rejection of ₹1,02,25,538 in Service Tax Appeal No. 41653 of 2017 and ₹24,35,439 in Service Tax Appeal No. 41654 of 2017, totalling ₹1,26,60,977, along with applicable interest.

It directed the Assistant Commissioner to sanction and pay the refund within three months of receiving the order. The officer may verify that no part of these amounts has already been refunded under another claim, but cannot reopen any question decided by the Tribunal.

For Appellant: Advocate Raghav Rajeev,

For Respondent(s): O.M. Reena, Authorised Representative