Endorsement by SEZ Officer not mandatory for zero-rated services prior to Sep 2018: Karnataka HC
Issue
Whether the endorsement of invoices by an SEZ Authorized Officer (under Rule 30(4) of the SEZ Rules) is a mandatory pre-condition for claiming zero-rated status on services supplied by a Domestic Tariff Area (DTA) provider to an SEZ unit for the period July 2017 to March 2018.
Facts
The Demand: The Revenue authorities raised a tax demand against the assessee (MK Travels) for the tax periods between July 2017 and March 2018.
Basis of Demand: The sole ground for the demand was that the assessee failed to submit invoices duly endorsed by the SEZ Commissionerate/Authorized Officer as per Rule 30(4) of the SEZ Rules, 2006.
Revenue’s Reliance: The authorities relied on the amended version of Rule 30(4) (introduced via Notification dated 19-09-2018) and a subsequent Circular dated 12-09-2019 to justify the requirement of endorsement.
Petitioner’s Defense: The petitioner argued that the amendment requiring such endorsement was introduced effectively from 21-09-2018 and could not be applied retrospectively to the period in dispute (2017-18).
Decision
Prospective Application: The Karnataka High Court held that the amendment to Rule 30(4) of the SEZ Rules, which mandates endorsement for claiming benefits, became effective only from September 21, 2018.
No Retrospective Effect: The Court ruled that neither the amended Rule nor the Circular dated 12-09-2019 could be applied retrospectively.
Statutory Requirement: For the disputed period (July 2017 – March 2018), there was no statutory requirement under Section 16 of the IGST Act or the unamended SEZ Rules compelling the endorsement of invoices for services to be treated as zero-rated.
Ruling: The application of the 2018 amendment to the 2017-18 period was deemed legally erroneous. Consequently, the demand raised against the assessee was set aside.
Key Takeaways
Temporal Application of Rules: Substantive procedural changes, such as the mandatory requirement for officer endorsements to claim tax exemptions, are generally prospective unless explicitly stated otherwise by the statute.
Zero-Rating Evidence: For periods prior to Sep 2018, DTA service providers can prove the supply to SEZ units through other corroborative evidence (e.g., payment realization, contracts) even if the specific “endorsement” on the invoice is missing.
Circular Limitations: Circulars issued by the department to clarify procedures cannot impose new liabilities retrospectively for periods before their issuance.