2018 (6) TMI 131 - AT - Service Tax

Exemption on services provided in SEZ - deemed exports - Composition Scheme - Works Contract - Single Composite service - Whether the respondent is entitled for exemption of services provided in SEZ during the period April 2000 to March 2010 in terms of Provisions of Section 26 of SEZ Act, 2005 or not? Held that - Services provided to a SEZ or unit in the SEZ is deemed as export as per the provisions of Section 2 (m) (ii) of the SEZ Act, 2005 and as per Rule 31 of the SEZ Rules, 2006, the appellants are entitled for exemption from payment of service tax on the services which are used or provided to a unit in the SEZ. The respondents is entitled for exemption on services provided in SEZ - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Entitlement to avail the Composition Scheme under Works Contract Rules, 2007 for projects running prior to 01.06.2007.
2. Eligibility for exemption under Notification No.12/2003-ST for discharging Service Tax liability.
3. Inclusion of the value of construction materials received free of cost in the gross amount charged for calculating Service Tax.
4. Entitlement for exemption of services provided in SEZ under Section 26 of SEZ Act, 2005.

Issue-wise Detailed Analysis:

1. Entitlement to Avail the Composition Scheme under Works Contract Rules, 2007:
The respondents were engaged in providing taxable services under various categories including construction services. During an audit, it was noted that the respondents had 14 running projects on which they availed the scheme available under Works Contract (Composite scheme for payment of Service Tax) Rules, 2007 from 01.06.2007. According to CBEC Circular No.98/1/2008-ST, dated 04.01.2008, service providers are not entitled to avail the Composition Scheme for projects running prior to 01.06.2007. The respondents paid Service Tax at different rates before and after 01.06.2007, which was found to be non-compliant with the circular stipulations.

2. Eligibility for Exemption under Notification No.12/2003-ST:
The respondents availed benefits under Notification No.12/2003-ST dated 20.06.2003, which exempts the value of goods and materials sold by the service provider, subject to specific conditions. However, it was observed that the respondents did not fulfill the conditions required under this notification, thus appearing ineligible to avail the exemption for discharging their Service Tax liability for commercial and residential construction services.

3. Inclusion of Value of Construction Materials Received Free of Cost:
The respondents received construction materials free of cost from their clients but did not include the value of such materials in the gross amount charged for calculating Service Tax. According to Notification No.15/2004-ST and subsequent amendments, the "gross amount charged" should include the value of goods and materials supplied or used by the service provider for providing the service. Therefore, the respondents were required to add the value of these materials in the gross amount charged to be eligible for the abatement of 67% from the gross taxable value.

4. Entitlement for Exemption of Services Provided in SEZ:
The proceedings were initiated against the respondents for denying the benefit of the composite scheme under Works Contract Service from 01/06/2007. The adjudicating authority dropped the demand against the respondents for the period April 2000 to March 2010 for works contracts executed in SEZ. The Revenue appealed against this decision, arguing that the respondents should pay service tax first and then claim a refund for services provided in SEZ. The Tribunal examined similar cases, including Tata Consultancy Services Ltd. and Intas Pharma Ltd., concluding that services provided to SEZ units are deemed as exports and are exempt from service tax under Section 26 of the SEZ Act, 2005. The Tribunal upheld the respondents' entitlement to exemption on services provided in SEZ and dismissed the Revenue's appeal.

Conclusion:
The Tribunal ruled that the respondents were not entitled to avail the Composition Scheme under Works Contract Rules, 2007 for projects running prior to 01.06.2007 and were ineligible for exemption under Notification No.12/2003-ST due to non-fulfillment of conditions. However, the Tribunal upheld the exemption for services provided in SEZ, dismissing the Revenue's appeal.