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 :-

"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.]

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.]