AN UPDATE ON EXEMPTION OF SERVICE TAX TO SPECIAL ECONOMIC ZONES

[Dr. Sanjiv Agarwal]

Exemption is allowed to Special Economic Zones in terms of Notification issued by Ministry of Finance Presently, w.e.f. 3.3.2009, SEZs are allowed to avail exemption by way of refund  of service tax paid on the specified services on or after 3.3.2009, i.e., date on which Notification No. 9/2009 service tax dated 3.3.2009 was issued.

Claiming Exemption by SEZs (Developers and Units )

Notification No. 9/2009-ST dated 3.3.2009 which supercedes Notification No 4/2004-ST dated 31.3.2004 allows exemption by way of refund in respect of all taxable services provided in relation to authorized operations in a special economic zone (SEZ) to-

(a)                developer of SEZ, or

(b)                unit of SEZ

whether or not provided inside the SEZ

Thus, Notification No. 9 dated 3.3.2009 was issued to provide refund of service tax paid on taxable services which are provided in relation to the authorized operations in a special economic zone and received by the developer or units of SEZ.

Earlier, exemption was not allowable outside the SEZ, i.e., in domestic tariff area (DTA).

Notification No 9/2009 has since been amended vide Notification No 15/2009-ST dated 20.5.2009 w.e.f. 20.5.2009. The amendment provides unconditional exemption to services consumed within SEZ.

According to the new Notification issued on 20^th May, 2009 , which amends Notification No 9 dated 3.3.2009, w.e.f. 20.5.2009, the developers of SEZ and units in SEZ can claim exemption of service tax for taxable services consumed within the SEZ without following the refund procedure . Thus, for the taxable services used in SEZ, the requirement of first paying to service tax on input services and its subsequent refund claim has been dispensed with.

The exemption of service via refund route shall however, continue for cases where taxable services are consumed outside the SEZ, either wholly or partly.

EXEMPTION STATUS TO SEZS

 

Notification No	Period	Area	Exemption
4/2004-ST dated 31.3.2004	31.3.2004 To 18.5.2009	Within SEZ	General
9/2009-ST dated 31.3.2004	31.3.2009 To 19.5.2009	Inside or outsize SEZ	Via Refund route
15/2009-ST Dated 20.5.2009	w.e.f. 20.5.2009 onwards	Inside SEZ	Unconditional Exemption
15/2009-ST Dated 20.5.2009	w.e.f. 20.5.2009 onwards	Outside SEZ	Via Refund route
15/2009-ST Dated 20.5.2009	w.e.f. 20.5.2009 onwards	Partly inside/ outside SEZ	Via Refund route

Transitional Refund cases 

CBEC has clarified vide Circular No 114/08/2009-ST dated 20.5.2009 that refund of service tax paid on taxable services used in relation to authorized operations in SEZ should be disposed off expeditiously. The pending refund claims are to be finalized within a maximum period of 30 days of filing of claim but not later than 45 days in any case. This would imply that all pending claims for the period prior to 20, May, 2009 shall be aimed for disposal by 5^th July, 2009.

Conditions for Availing Exemption by SEZ

Following conditions are required to be fulfilled in terms of Notification No. 9 as amended by Notification No. 15 dated 20.5.2009 -

(1)                Taxable services to be provided to developer of SEZ or units in SEZ

(2)                Exemption is available by way of refund of service tax paid except for services consumed wholly within SEZ

(3)                Exemption under Notification No 9 is available w.e.f. 3 March, 2009 and onwards

(4)                Exemption is available only in respect of specified services, i.e., list of services approved by Approval Committee. Thus, developer or unit should get the list of services approved by such authority.

(5)                Such approved services should be used for authorized operations in SEZ.

(6)                The exemption is not a straight exemption but is available way of a refund of service tax being claimed as refund in case of services consumed outside the SEZ, wholly or partly.

(7)                Developer or unit must have paid the service tax being claimed as refund.

(8)                Cenvat credit should not have been taken on such services.

(9)                Exemption or refund can not  be claimed  in a manner otherwise than as contained in Notification No 9/2009 (as amended by Notification No. 15/2009)

(10)            Exemption will be available if the person liable to pay service tax has paid the service tax on service provided to developer or units.

(11)            If person liable and developer / unit are same person, then exemption will he claimed by that person only.

(12)            Refund claim shall be made to jurisdictional Assistant/ Deputy  Commissioner of Central Excise

(13)            If a developer / unit is not registered under Central Excise, it shall prior to filing of claim of refund, file a declaration to authorities as per (12) above.

(14)            The developer or unit of SEZ shall be required to maintain proper account of receipt and utilization of taxable services for which exemption is claimed. (Inserted w.e.f. 20.5.2009).

(15)            For jurisdiction purpose, developer/ unit will be allotted service tax code number, after due verification within 7 days from the receipt of form.

(16)            Refund claim can be filed within six months from the date of actual payment of service tax or such extended time as may be allowed.

(17)            Refund claim should be accompanied by -

(a)                list of specified services as approved by approval committee.

(b)                documents evidencing payment of service tax.

(c)                declaration that services have been received in relation to authorized operations in SEZ.

(18)            Refund claim should be complete and contain the requisite   documents

(19)            The Assistant/ Deputy Commissioner of Central Excise will satisfy himself about actual use of specified services in relation to authorized operations in SEZ and order for refund, thereafter.

(20)            80 percent of the due refund amount is required to be sanctioned as an adhoc interim refund within 15 days of filing of refund claim.

(21)            The Assistant/ deputy Commissioner may cause verification of end use of services consumed where refund claim is of significant amount

(22)            In case of erroneous refund, it will be recovered as if it is a recovery of service tax erroneously refunded.

(23)            Refund is allowed in respect of service tax only paid on or after the date of Notification , i.e., 3.3.2009.

(24)            If the claim of refund is rejected, appeal may be preferred.

(25)            Conditions of para (2) of Notification No 9/2009- ST do not apply to developer or units consuming taxable services wholly within SEZ.

Procedure relating to sanction and pre audit of refund / rebate claims shall be followed in case of individual refund claims exceeding Rs.5  lakhs.

(Form is not reproduced- Refer to Notification No 9.2009-ST dated 3.3.2009).