Taxable services consumed within SEZs – Fully exempt without recourse to refund
NOTIFIACTION No.9 /2009-Service Tax, dated 3.3.2009 was issued to provide refund of service tax paid on taxable services specified in section 65(105) of the Finance Act, 1994 which are provided in relation to the authorised operations (as defined under SEZ Act, 2005) in a Special Economic Zone ( SEZ ), and received by a developer or unit of a SEZ , whether or not the said taxable services are provided inside the SEZ .
It is common knowledge that getting your money by way of refund from the department is ridden with artificial roadblocks and mired in bureaucratic red tape. At the end of it all, money that is actually due to the assessee will trickle in only after sustained legal battles. In this backdrop, following the refund route for claiming exemption from service tax for taxable services consumed by SEZ developers and units in SEZs was one more attempt by the department to tighten the noose around SEZs in the name of revenue leakage. We questioned the wisdom of this proposed exemption through refund mechanism in our dated March 4, 2009 as it is contrary to the various provisions of SEZ Act and the Rules .
To minimize the misery of SEZ developers and units, CBEC has now issued Notification No. 15/2009-Service Tax, dated 20.05.2009 to amend the Notification 9/2009-ST dated March 3, 2009 to provide unconditional exemption to services consumed within the SEZ without following the refund route thus dispensing with the requirement of first paying the tax by the service provider and then claiming the refund by developer/unit . Now, the exemption through refund route would be limited to situations only when taxable services provided to SEZ are consumed partially or wholly outside SEZ .
Notification No. 15/2009-ST amends sub clauses (c), (d) of Paragraph 1 by substituting them with new sub clauses, inserts a new sub clause (g), and amends Paragraph 2 as detailed below:
The old sub clause (c) reads as follows:
(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone;
The substituted version reads as follows:
(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone except for services consumed wholly within the Special Economic Zone;
The old sub clause (d) read as follows:
(d) the developer or units of Special Economic Zone claiming the exemption has actually paid the service tax on the specified services;
The substituted sub clause reads as follows:
(d) the developer or units of Special Economic Zone claiming the exemption, by way of refund in accordance with clause (c), has actually paid the service tax on the specified services;
After sub clause (f) the following sub clause is inserted
(g) the developer or unit of a Special Economic Zone shall maintain proper account of receipt and utilisation of the taxable services for which exemption is claimed.
In paragraph 2, for the words, “ shall be subject to the following conditions ”, the words, “, except for services consumed wholly within the Special Economic Zone, shall be subject to the following conditions ” shall be substituted.
In DDT 1065, dated March 4, 2009 we also raised questions on the jurisdiction of officer where the refund claim has to be filed, the requirement of STC for availing the refund mechanism, time limit for sanction of refund claims and verification of authorized operations undertaken by SEZ developers and units in SEZ .
In this regard, CBEC vide Circular 114/08/2009-ST Dated: May 20, 2009 clarifies as follows:
i ) The Assistant / Deputy Commissioner should satisfy himself that the said services have been actually used in relation to the authorised operations in the SEZ . This may be primarily done through the documents submitted with the claim
ii) The Assistant / Deputy Commissioner may, in select cases, especially where the refund amount claimed is significant cause verification of the end-use of services consumed for which refund claim is filed
iii) Board's Circular No. 809/06/2005- CX , dated 01.03.2005 read with Circular No.857 /15/2007- CX , dated 02.11.2007 which prescribes the procedure relating to sanction and pre-audit of refund / rebate claims, shall apply mutatis mutandis to cases where the individual refund claim amount exceeds Rs.5 lakhs
iv) As regards the issues relating to jurisdiction for the purposes of refund of service tax, STC code to be issued to the developer or unit of a SEZ and documents evidencing payment of service tax, Board's Circulars No. 101/4/2008-ST, dated May 12, 2008 and No. 106/9/2008-ST dated December 11, 2008 shall apply mutatis mutandis to this refund scheme
v) It is directed that 80% of the refund amount is to be sanctioned as an ad hoc interim refund to developer or unit of SEZ , within 15 days of filing of a refund claim, subject to the condition that refund claim is complete and contains the requisite documents. It is further reiterated that refund of service tax paid on taxable services used in relation to the authorised operations in the SEZ should be disposed of expeditiously. The refund claims should be finalized within a maximum period of 30 days from the date of filing of refund claim and in any case not beyond 45 days from the date of filing of the refund claim
Finally, the jurisdictional Commissioners are advised to put in place a system of review and monitoring of disposal of refund claims filed and disposed within the prescribed time limits.
What if the refund is not sanctioned within 15 days for cases where the claim is complete in all respects with all the prescribed documents and within 45 days in other cases? Have we not seen instances where refund claims filed under Rule 5 of CENVAT Credit Rules, 2004 by exporters of taxable services languishing in the field formations on one pretext or the other, even after Board issued circular after circular directing the field formations to expedite the refund claims. This is even after bringing such refund claims under the purview of Section 11B of the Central Excise Act.
How much sanctity can we attach to the time limits prescribed for this refund mechanism through a Circular? Only time will tell if this refund mechanism delivers the much needed relief to the SEZ developers and units in SEZs .
One of our experts feels,
It is not a major relief as again the “consumption within SEZ " has been brought back which was the centre of disputes under the earlier Notification. How can one establish the services are consumed within SEZ ? If they feel that the refund route is cumbersome, They should have extended the exemption whether the services are consumed within SEZ or not.
And another opines,
They are trying to make a clear distinction between services which are consumed within the SEZ for which in any case an exemption is available - in the sense SEZ Act prevails. But for those services which are partially or wholly provided outside SEZ then through this amendment they want to provide exemption through refund mechanism.
I think this amendment is actually a climb-down by CBEC but at the same time retaining the right to decide on the usage, after all you never know if a service consumed outside the SEZ is actually meant for the SEZ or not, for eg . some rent a cab service utilized by the headoffice of an SEZ developer or a unit in SEZ , which may not be relevant to the authorized operations. So we have to give it to CBEC as well instead of giving everything to SEZs on a platter. In my view better sense prevailed this time.
“But shouldn't they also amend Rule 6(6) of CENVAT Credit Rules to excluded the services consumed in SEZ ?” is what another expert asked us.
Service Tax Notification No. , and Service Tax Circular No. , both dated: May 20, 2009