Refund for SEZ-authorised operations cannot be denied solely for breaching a notification’s procedural limitation period.

The respondent was a Special Economic Zone (SEZ) unit engaged in manufacturing refined sugar. During the relevant period, it received taxable services for authorised operations and paid service tax on those services.

It filed a refund claim on 2 August 2011. The adjudicating authority sanctioned ₹11,73,943 relating to March 2011 but rejected ₹72,99,743 pertaining to the period from 1 April 2010 to 28 February 2011, holding that the claim was filed beyond the six-month limitation prescribed under Notification No. 9/2009-ST dated 3 March 2009.

The Commissioner (Appeals) set aside the rejection, holding that the refund could not be denied on limitation. The Revenue appealed to the Tribunal.

1. Whether the refund of service tax paid on services used for the authorised operations of an SEZ unit could be denied solely because the claim was filed beyond the six-month period prescribed under Notification No. 9/2009-ST.

2. Whether the substantive exemption available under Section 26(1)(e) of the Special Economic Zones Act, 2005, read with the overriding provision in Section 51, could be curtailed by a procedural limitation condition contained in a notification issued under the Finance Act, 1994.

3. Whether Notification No. 17/2011-ST, prescribing a one-year limitation with effect from 1 March 2011, applied to the refund relating to the earlier period.

Section 26(1)(e) of the SEZ Act, 2005, confers exemption from service tax on services received by an SEZ unit for authorised operations, while Section 51 gives the SEZ Act overriding effect over inconsistent provisions in other enactments.

The Tribunal relied on GMR Aerospace Engineering Ltd. v. Union of India, 2019 (31) GSTL 596 (AP), which held that the substantive exemption under the SEZ Act cannot be curtailed by conditions imposed through notifications issued under another enactment.

Although refund claims are ordinarily governed by the applicable statutory mechanism and limitation provisions, as recognised in Mafatlal Industries v. Union of India, 1996 (12) TMI 50 (SC), and Oil and Natural Gas Corporation Ltd. v. Commissioner of GST & Central Excise, 2024 (6) TMI 1417 (CESTAT Chennai—LB), procedural conditions cannot be applied so as to defeat a substantive exemption flowing directly from the SEZ Act.

The respondent’s status as an SEZ unit and the use of the disputed services for authorised operations were undisputed, establishing its substantive entitlement under Section 26(1)(e) of the SEZ Act.

The Tribunal held that the refund arose only because service tax had been paid on services that were otherwise exempt for the respondent’s authorised operations. Consequently, the six-month limitation in Notification No. 9/2009-ST was treated as a procedural mechanism for implementing the exemption and could not be enforced in a manner that completely defeated the substantive statutory benefit.

The Revenue’s reliance on authorities concerning statutory refund limitations or benefits arising solely from exemption notifications was distinguished because, in the present case, the underlying entitlement originated in the SEZ Act itself and was protected by Section 51’s overriding effect.

Since the refund was allowed on this basis, the Tribunal found it unnecessary to decide whether the one-year limitation under Notification No. 17/2011-ST applied retrospectively to the earlier period.

The Revenue’s appeal was dismissed, the Commissioner (Appeals)’s order was upheld, and the respondent was granted consequential relief in accordance with law.