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Special Economic Zones
Service Tax issues relating to units in sez
PROVISIONS OF SERVICE TAX LAW

Taxable services received by SEZ (Special Economic Zone) units (including unit under construction) and SEZ developers for consumption within the SEZ are exempt from service tax. [Please Refer : Notification No. 4 / 2004 - Service Tax dated 31-03-2004.]

Such exemption can be availed subject to the following conditions :-

I. The ‘developer’ has been approved by the ‘Board of Approvals’ to develop, operate and maintain the SEZ.
II.The unit of the SEZ has been approved by the development Commissioner or Board of Approvals, to establish the unit in the SEZ.
III. The developer or unit of a SEZ shall maintain proper account of receipt and utilisation of the said taxable services.

"Board of Approvals" means the combined Board of Approvals for export oriented unit and Special Economic Zone units, as notified in the Official Gazette, from time to time by the Government of India in the Ministry of Commerce and Industry.

"Developer" means a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorised for such purpose by any such developer.

“Special Economic Zone" means a zone specified as Special Economic Zone by the Central Government in the notification issued under clause (iii) of Explanation 2 to the proviso to sub-section (1) of section 3 of the Central Excise Act, 1944 (1 of 1944).

[Please Refer : Notification No. 4 / 2004 - Service Tax dated 31-03-2004.]

Refund of Service Tax :

Refund of Service Tax paid on certain taxable services used in export of goods is permitted under notification 41/2007-ST. Refund of Service Tax would be allowed by the jurisdictional Deputy Commissioner/Assistant Commissioner of Central Excise and it is to be processed by the respective jurisdictional authority administering Service Tax law. Accordingly, it is clarified that claiming refund of Service Tax the SEZ units, should take Service Tax registration with the jurisdictional authorities and file their claims there. [Please Refer : Circular No. 105/8/2008  dated : 16/09/2008.]

 
Provisions of Special economic zone act, 2005

Exemption Provisions of Special Economic Zone Act, 2005 :

Every developer and the entrepreneur is entitled to  exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone. [Please Refer : Sec 26(1)(e), Special Economic Zones Act, 2005.]

Further, this exemption is also available to Unit under construction. [Please Refer : Rule 31, Special Economic Zones Rules, 2006.]

Overriding Provision of Special Economic Zone Act, 2005 :

The provisions of Special Economic Zone Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. As per this provision it can be said that if any conflict would arise between Finance Act 1994 and Special Economic Zone Act 2005 the SEZ Act 2005 will prevail over Finance Act. [Please Refer : Section 51, Special Economic Zone Act, 2005.]

 

Case Laws Related

  • STO 2013 CESTAT 914
  • SEZ: Refund under Notification No. 9/2009-ST dated 03/03/20019.: No service tax is payable on the services provided by a service provider to a SEZ unit. Section 51 of the SEZ Act also makes over-riding provision that SEZ Act shall have effect even if there is anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any other law.

  • STO 2013 CESTAT 807
  • Exemption: SEZ: Demand: For the intervening period: Prior to 3-3-2009 there was exemption from payment of duty and after 20-5-2009, the exemption continued, during the interim period, there was no exemption : the situation was revenue neutral since even if the appellant was to pay the Service Tax, recipient could have claimed the same as refund, which is what is done in respect of Service Tax paid in respect of the services utilized outside SEZ, the question of having any intention to evade duty does not arise and therefore the Show Cause Notice issued on 19-10-2010 to recover the Service Tax from 3-3-2009 to 20-5-2009 was time-barred: Pre deposit waived.

  • STO 2013 CESTAT 657
  • Exemption: SEZ: Demand: For the intervening period: Prior to 3-3-2009 there was exemption from payment of duty and after 20-5-2009, the exemption continued, during the interim period, there was no exemption: the situation was revenue neutral since even if the appellant was to pay the Service Tax, recipient could have claimed the same as refund, which is what is done in respect of Service Tax paid in respect of the services utilized outside SEZ, the question of having any intention to evade duty does not arise and therefore the Show Cause Notice issued on 19-10-2010 to recover the Service Tax from 3-3-2009 to 20-5-2009 was time-barred: Pre deposit waived.

  • STO 2013 CESTAT 461
  • SEZ: Notfn.No.9/2009: Any service tax paid/ remitted by a service provider is liable to be refunded to the provider who has remitted service tax in relation to taxable services provided to a developer or unit, to carryon authorized operations in a SEZ. 

  • STO 2013 CESTAT 597
  • SEZ: Input Services: Appellants permitted to avail certain input services namely Legal services, Tour Operator Services, Air Travel Agent Services etc. by the Board of Approval subsequently: These approvals not available at the time of filing of the refund claim though the appellant had sought the approval much earlier: Entire matter needs reconsideration in view of the approvals granted by the Development Commissioner or competent authority : Matter remanded.

  • STO 2012 CESTAT 309
  • Special Economic Zone: Services provided outside SEZ will not be eligible for exemption under Notification No.4/2004-ST dated 31/03/2004

  • STO 2011 CESTAT 251
  • Service Tax: Service provided to SEZ: Special Economic Zone Act, 2005 and the Special Economic Zone Rules, 2006 : There is no dispute that the containers provided to the units in the SEZ have been used by such units for the authorised operations namely, for bringing inputs for manufacture and carrying the finished goods out of SEZ for export purposes. Therefore, the impugned services relating to supply of containers in the SEZ are exempt from payment of service tax. The impugned order is set aside and allow the appeals. (para 7)

  • STO 2011 CESTAT 116
  • Service Tax : Denial of exemption in terms of Notification No. 4/2004-ST dated 31.3.2004: The applicants have made out a strong prima facie case for total waiver in the light of the language of Section 26(1)(e) of the SEZ Act which provides exemption from service tax on taxable service provided to a developer or unit to carry on the authorized operations in a Special Economic Zone and there is no dispute that taxable services was provided to a SEZ unit which carried on authorized operations. The case of the Department is that Notification in question exempts service tax only on services Consumed within the SEZ. Requirement of pre-deposit dispensed with and stay recovery thereof pending the appeal.(Para3).

    News Related

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  • Does finance ministry think SEZ as 'special evasion zones'?
  • Blanket Exemption to Services Consumed Within SEZ
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