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Services received by SEZ prior to commencement of authorized operations eligible for exemption/ refund

Services received by SEZ prior to commencement of authorized operations also eligible for exemption/ refund, if said service is necessary prior to actual commencement of operation
Commissioner of Service Tax Vs. Zydus Technologies Ltd [(2014) 52 taxmann.com 376 (Gujarat)]

Zydus Technologies Ltd. (the Assessee) filed a refund claim of Rs. 1,75,53,497/- for the services received by Special Economic Zones/ Developers (SEZ) vide application dated May 31, 2010 in terms of the Notification No. 9/2009-ST dated March 3, 2009, submitting that the Development Commissioner, Kandla SEZ under letter dated June 29, 2009 had permitted setting up a SEZ unit and the said approval letter was valid for a period of one year from the date of issue.
The Department argued that as such up to June 28, 2012, the Assessee continued to submit application/ sought extension for permitting to set up a unit in SEZ and accordingly, denied exemption/ refund on the ground that the services were not actually used for authorized operations, as the Assessee had not started manufacturing activity/ authorized operations.
Being aggrieved, the Assessee preferred an appeal before the Hon’ble Tribunal.
The Hon’ble Tribunal held that to start the production, it is necessary for SEZ to procure support services from initial stage, hence decided the matter in favour of the Assessee. Being aggrieved, the Department preferred an appeal before Hon’ble High Court of Gujarat.
The High Court of Gujarat relied upon the judgement in the case of Commissioner of C. Ex., Ahmadabad-II Vs. Cadila Healthcare Ltd. [2013 (30) STR 3 (Gujarat)] and held that services received even for period prior to actual manufacture of final product can be regarded as ‘commercial activity/ production’, if said service is necessary prior to actual manufacturing activity. Hence, in the instant case, the Assessee is eligible for refund/ exemption.

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