Services provided to SEZs exempted from service tax

The government has decided to exempt the services received by a unit located in a special economic zone (SEZ) or a developer of SEZ for authorised operation from the purview of service tax, including education cess and secondary and higher education cess leviable thereon.

Services provided to SEZs are currently subject to service tax under section 66B of the Act.

The exemption is proposed to be provided by way of refund of service tax paid on the specified services received by the SEZ unit or the developer and used for the authorised operations.

Where the specified services received by the SEZ unit or the developer are used exclusively for the authorised operations, the person liable to pay service tax has the option not to pay the service tax ab initio, subject to the following conditions and procedures:

This exemption will be given to such specified services authorised by the SEZ approval committee to the unit or the developer to avail for the authorised operations on which the SEZ unit or developer wish to claim exemption from service tax.

The ab-initio exemption on the specified services received by the SEZ unit or developer and used exclusively for the authorised operation will be allowed subject to the following procedure and conditions:

• The SEZ unit or the developer should furnish a declaration in Form A-1, verified by the specified officer of the SEZ, along with the list of specified services in terms of condition;
• On the basis of declaration made in Form A-1, an authorisation will be issued by the jurisdictional deputy commissioner of central excise or assistant commissioner of central excise, as the case may be to the SEZ unit or the developer, in Form A-2;
• The SEZ Unit or the developer should provide a copy of the authorisation to the provider of specified services, on the basis of which the service provider will provide the specified services to the SEZ unit or the developer without payment of service tax;
• The SEZ unit or the developer should furnish a quarterly statement to the jurisdictional superintendent of central excise, in Form A-3, furnishing the details of specified services received by it without payment of service tax;
• The SEZ unit or the developer should furnish an undertaking in Form A-1 that in case the specified services on which exemption has been claimed are not exclusively used for authorised operation or were found not to have been used exclusively for authorised operation, it shall pay to the government an amount that is claimed by way of exemption from service tax and cesses along with interest as applicable on delayed payment of service tax under the provisions of the said Act read with the rules made thereunder.

The refund of service tax on the specified services that are not exclusively used for authorised operation, or the specified services on which ab-initio exemption is admissible but not claimed, will be allowed subject to the following procedure and conditions:

• The service tax paid on the specified services that are common to the authorised operation in an SEZ and the operation in domestic tariff area (DTA units) would be distributed amongst the SEZ units or the developer and the DTA units in the manner as prescribed in Cenvat Credit Rules. For the purpose of distribution, the turnover of the SEZ unit or the developer will be taken as the turnover of authorised operation during the relevant period;
• The SEZ unit or the developer should be entitled to refund of the service tax paid on the specified services on which ab-initio exemption is admissible but not claimed, and the amount distributed to it in terms of clause of SEZ unit or the developer who is registered as an assessee under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, or the said Act or the rules made thereunder, should file the claim for refund to the concerned deputy commissioner of central excise or assistant commissioner of central excise in Form A-4;
• The amount indicated in the invoice, bill or challan, on the basis of which the refund is being claimed, including the service tax payable thereon, should have been paid to the person liable to pay the service tax thereon, or the amount of service tax payable under reverse charge should have been paid under the provisions of the said Act;
• The claim for refund should be filed within one year from the end of the month in which actual payment of service tax was made by such developer or SEZ unit to the registered service provider or such extended period as the assistant commissioner of central excise or deputy commissioner of central excise, as the case may be, shall permit;
• The SEZ unit or the developer should submit only one claim of refund under this notification for every quarter.