2020 (11) TMI 35 - AT - Service Tax

Exemption from service tax on the services rendered to the SEZ units - Receipt of Rent from SEZ units - demand of service tax for the reason that though the exemption provided under the Special Economic Zones Act 2005, SEZ Act has been prescribed by Notification dated March 3, 2009, but the appellant did not follow the conditions prescribed therein - signage income - sale of space or time for advertisement service or not - HELD THAT - It is not in dispute that the appellant is a co-developer of the four SEZ‟s. Two of them are situated in Gurgaon and one each in Chennai and Hyderabad. The appellant has rented out immovable property in the SEZ to units located within the SEZ and has received rent. The appellant also rented out some space in the SEZ to units to enable them to put up boards for displaying the name for identification purpose, for which it charged signage charges - Commissioner was not justified in examining whether the conditions set out in the Notification dated March 3,2009 were satisfied or not for grant of any exemption from service tax. Section 26(2) of the SEZ Act does provide that the Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions shall be granted to the Developer under sub-section (1) but what is important to notice, is that, the word prescribe would mean prescribed by rules made by the Central Government under the SEZ Act, in view of the definition of prescribed under section 2(w) of the SEZ Act. The Notification dated March 3, 2009, which has been issued under section 93 of the Finance Act, therefore, has no application. Signage income - HELD THAT - Under the agreement, the appellant rented out office space in the two SEZ units in return for a specified rent amount and in addition also rented out some space to these units for displaying their name for identification purpose, for which the applicant charged signage charges - In the first instance, irrespective of classification of the said service, the said service had been used by the SEZ units for their authorized operations. There is no dispute on this aspect either in the show cause notice or the impugned order. In such circumstances, such service would be exempt from payment of service tax under the SEZ Act and the confirmation of demand of service tax on this service cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Exemption from service tax on services rendered to SEZ units.
2. Classification and taxability of signage income.

Detailed Analysis:

1. Exemption from Service Tax on Services Rendered to SEZ Units:

The appellant, a co-developer of four SEZs, rented out immovable property and charged rent and signage fees to SEZ units. The appellant claimed exemption from service tax based on the SEZ Act, arguing that the services were used for authorized operations. However, the Commissioner confirmed the demand for service tax, stating that the appellant did not comply with the conditions of Notification No. 9/2009-ST dated March 3, 2009.

The appellant contended that the services were exempt under the SEZ Act, which has overriding provisions. The SEZ Act, particularly Section 26, provides exemptions from service tax for services used in authorized operations. Section 51 of the SEZ Act gives it an overriding effect over other laws, including the Finance Act.

The Tribunal noted that the Notification dated March 3, 2009, issued under Section 93 of the Finance Act, required exemption by way of refund, which was inconsistent with the SEZ Act. The SEZ Act and its rules (Rule 31) prescribe the manner of exemptions, which should prevail over the Finance Act. The Tribunal cited the Telangana and Andhra Pradesh High Court's decision in GMR Aerospace Engineering Limited, which supported the appellant's view that the SEZ Act's provisions override the Finance Act's conditions.

2. Classification and Taxability of Signage Income:

The appellant also rented space for SEZ units to display their names and charged signage fees. The Commissioner treated this as "sale of space or time for advertisement" and denied exemption, as it was not listed as an approved service.

The Tribunal held that the signage service was part of renting immovable property, essential for identification purposes, and used for authorized operations. Therefore, it should be exempt under the SEZ Act. Additionally, the Tribunal stated that merely classifying the service as advertisement did not change its nature as renting of immovable property. The Tribunal also clarified that the service did not fit the definition of "sale or space or time for advertisement" under Section 65(105)(zzzm) of the Finance Act.

Conclusion:

The Tribunal concluded that the Commissioner was not justified in confirming the demands for service tax on both the rental and signage services. The conditions of the Notification under the Finance Act were inconsistent with the SEZ Act, which provides overriding exemptions. The appeal was allowed, and the order dated December 23, 2015, was set aside.