2016 (7) TMI 1154 - HC - Service Tax

Taxability of services provided by the SEZ unit to the DTA unit of the same assessee - principle of mutuality - Held that - Identical issues raised by the same assessee for assessment year came up for consideration in 2016 (7) TMI 307 - GUJARAT HIGH COURT The Tax Appeals of the Government were dismissed. - These Tax Appeals are also dismissed.

Summary

Issues Involved:
1. Whether the Customs, Excise, and Service Tax Appellate Tribunal committed a substantial error of law in holding that for the purpose of service tax, the respondent's SEZ unit and DTA unit are a single legal entity and thus not liable to pay service tax.

Detailed Analysis:

1. Statutory Provisions and Definitions:
The court referred to Section 66 of the Finance Act, 1994, which pertains to the charge of service tax, and Section 65(105), which defines various taxable services. Clause (zzzq) pertains to services provided in relation to support services of business or commerce. Section 65(104c) defines "Support Services of Business or Commerce" and includes various services such as evaluation of prospective customers, telemarketing, processing of purchase orders, etc. The court noted that in ordinary circumstances, it is not even the respondent's case that the services provided by the SEZ unit are not taxable services.

2. Special Economic Zones Act, 2005:
Section 2(za) defines a Special Economic Zone (SEZ), and Section 2(zc) defines a unit within an SEZ. Section 7 provides for exemptions from taxes, duties, or cess for goods or services exported out of, imported into, or procured from the Domestic Tariff Area (DTA) by a unit in an SEZ. Section 30 pertains to domestic clearance by units, indicating that goods removed from an SEZ to the DTA are chargeable to duties of customs.

3. SEZ Rules, 2006:
Rule 19(7) of the SEZ Rules, 2006, states that if an enterprise operates both as a DTA unit and an SEZ unit, it shall have two distinct identities with separate books of accounts, but it is not necessary for the SEZ unit to be a separate legal entity. Rule 22 outlines the terms and conditions for availing exemptions, drawbacks, and concessions, requiring units to maintain proper accounts and submit Annual Performance Reports.

4. Separate Identity of SEZ Units:
The court emphasized that statutory provisions create an artificially independent existence for SEZ units, even if the same legal entity has units in both SEZ and DTA. Rule 19(7) mandates distinct identities with separate books of accounts for SEZ and DTA units. This separation is crucial for maintaining the special concessions and exemptions granted to SEZ units.

5. Principle of Mutuality and Service Tax:
The court rejected the respondent's contention that services rendered by its SEZ unit to its DTA unit should not be chargeable to service tax on the principle of mutuality. The court reasoned that applying this principle would undermine the artificial separation of SEZ units for accounting and taxation purposes. The concept of mutuality applies to groups creating services for themselves, not to commercial transactions between SEZ and DTA units.

6. Value of Taxable Services:
Section 66 of the Finance Act, 1994, requires the ascertainment of the value of taxable services for levying service tax. The court noted that service tax can only be levied if the service provided carries a certain value. If no value is charged for the service, there would be no occasion for collecting service tax. The court found no provision in the Finance Act, 1994, that allows levying service tax on a deemed value if no charge is collected.

7. No Charge for Services Provided:
The court acknowledged the respondent's claim that the SEZ unit did not collect any charge for services provided to the DTA unit, and invoices were raised merely for convenience. The court concluded that no service tax could be levied as the services provided carried no actual value.

Conclusion:
The court dismissed the Revenue's appeal, clarifying that no service tax was leviable since the SEZ unit of the respondent had not charged for the services provided to its DTA unit. The appeals were dismissed on the grounds that the SEZ unit and DTA unit, while having distinct identities for accounting purposes, did not engage in taxable transactions that warranted the imposition of service tax.