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TMI Blog2011 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... SEZ under Section 27 of the SEZ Act), it cannot lead to an inference that other laws which may not have been specifically mentioned in the SEZ Act have no application to SEZs - All central laws apply to SEZs with modifications or exceptions, if any, as provided in the SEZ Act itself or in rules made thereunder. Scope of Sec. 66A - SEZs are deemed to be outside the customs territory of India only for undertaking authorized operations; all other enactments are applicable to the operations carried out in the SEZs. The MRO services would therefore be performed within the territory of India and Section 66 A will have no application in the context of these activities. The services provided by the applicant would be taxable under Section 66 of the said Finance Act, 1994. MRO (Maintenance, Repair and Overhauling) Services - MRO services provided by the applicant cannot also be considered as export of taxable services under the Export of Services Rules, 2005 since in terms of clause (ii) of Rule 3 (1) of the Export of Services Rules, services specified in sub-clause (zzg) of clause (105) of Section 65 of the Finance Act shall be considered as export only if such services are performed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Whether service tax is applicable on the services rendered by the applicant directly to: (a) Domestic airlines who operate domestic flights to India; (b) Domestic airlines who operate international flights; and (c) Foreign entities who operate international flights. (3) Whether in view of the provisions relating to Sections 51 and 53 of the SEZ Act, 2005, service tax will not be chargeable on the services rendered within the SEZ? (4) Whether MRO services proposed to be carried on by the applicant will be chargeable to service tax on an interpretation of Section 66A of the Finance Act, 1994 read with Rule 3(ii) of the Import of Service Rules (5) Whether MRO services rendered to the overseas entity for: (a) Domestic airlines who operate domestic flights to India; (b) Domestic airlines who operate international flights; and (c) Foreign entities who operate international flights.will qualify as export of services under the Export of Service Rules,2005? 3.1 Section 53(1) of the Special Economic Zones Act, 2005, by way of deeming fiction, regards an SEZ to be a territory outside the Customs territory of India for the purposes of unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o DTA is considered as import of goods into India [clause (o) of Section 2] (This is however, factually incorrect, because the said clause (o) does not refer to movement of goods from DTA to SEZ or vice versa) (c) sale of goods to unit in SEZ is considered as export of goods outside of India.[clause (m) of Section 2]. (d) rule 31 of the Special Economic Zones Rules, 2006 provides exemption from payment of service tax on all taxable services rendered to a developer or a unit by any service provider for the authorized operations in the SEZ. (e) rule 53 (k) of the SEZ Rules suggests that export of services for a unit includes the services rendered within the SEZ or services rendered to the DTA for which payment is received in foreign exchange. Therefore the SEZ legislation itself grants an implied recognition of export to services which are provided by the SEZ unit. The applicant claims that the aforesaid provisions confirm that SEZ territory is deemed to be a territory outside India for the purpose of fiscal levies. 3.4 Further neither the Finance Act, 1994 nor the SEZ Act expressly provide for levy of service tax on the activities carried out and consumed inside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d qualify as export of service in terms of Rule 4 of the Export of Service Rules, 2005 and be exempt from payment of service tax. 5.1 The Commissioner of Central Excise and Customs, Hyderabad-IV, the concerned Commissioner has contested the submissions made by the applicant regarding levy of service tax on the MRO activities proposed to be carried out by the applicant in the SEZ. Citing the statement of objects and reasons while introducing the relevant bill for the SEZ Act, the Commissioner has pointed out that the aims and objects of setting up the SEZs is to promote export led growth. The exemption from duties and taxes on goods and services is only for the purposes of export. The Commissioner has further observed that the exemption from service tax under clause (e) of Section 26 (1) of the SEZ Act is intended for taxable services provided to a developer or a unit to carry on authorized operations in a Special Economic Zone. Consequently Central Government has notified the exemption from the levy of service tax in such cases in terms of Notification No. 9/2009-ST dated 03.03.2009. 5.2 According to the Commissioner, provisions of Chapter V of the Finance Act, 1994 relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stly the application for advance ruling itself would be beyond the jurisdiction of the Authority. Further, while sub-section (1) of Section 53 of the SEZ Act would deem a SEZ to be a territory outside India, sub-section (2) of the said Section 53 designates a SEZ to be a port, airport, ICD etc., in India under the provisions of Customs Act, 1962. Moreover, if the SEZs are to be treated as territories lying outside India, there is no need for the SEZ Act, 2005 to be specifying the exemptions under Section 26. The DR submitted that a deeming fiction should be restricted to the Section which creates it and it cannot be extended beyond the purpose for which it has been created. The DR cited various judgments of the Hon ble Supreme Court to support his view. 6.2 It was further contended on behalf of the Department that unless there is a specific provision to grant an exemption to activities undertaken in a unit in SEZ, either by the SEZ Act or by any other Act or through an exemption issued under any specific act, the activities are taxable. 7.1 The issues raised by the applicant in its application before the Authority relate to levy of service tax on maintenance, repair and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s omitted to take into consideration, presumably by oversight, the term Customs in the phrase Customs territory of India for defining the territorial status of a Special Economic Zone. The applicant has also overlooked the fact that the deeming fiction has been created for the specific purpose of undertaking the authorized operations as defined in the SEZ Act. Customs territory is a well known term in international trade parlance and has been defined in the United Nations International Trade Statistics Knowledgebase as the territory in which the customs law of a state applies in full . A similar definition of Customs Territory has been provided in the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), an instrument finalized under the auspices of the World Customs Organization (WCO). Customs territory has been defined therein to mean the territory in which the Customs law of a Contracting Party applies . Effectively sub-section (1) of Section 53 of SEZ Act is a policy declaration by a deeming fiction that the authorized operations undertaken in areas notified as Special Economic Zones under the SEZ Act shall be beyon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods moving in and out of SEZ. If an SEZ were really deemed to be a territory outside India as the applicant would like us to believe there was apparently no need for such an expansive list of exemptions concessions. Infact there was no need to exempt goods from customs and excise duties under Indian laws when such goods are intended to be supplied to foreign lands. Likewise there was no need for granting exemptions under Section 7 of the SEZ Act from payment of taxes, duties or cesses under 21 different fiscal statues listed in the First Schedule to the Act if SEZs were to be deemed to be territories outside India. We are inclined to agree with the Department that the interpretation sought to be placed by the applicant would lead to contradictions absurd situations and therefore is not acceptable. Consequently all enactments (whether relating to fiscal levies, labour laws, banking laws or any other law) which apply to the territory of India apply in equal measure to the notified areas of special economic zones as well. If a particular law is applied to SEZs with modifications (the Income Tax Act,1961 applied to SEZ under Section 27 of the SEZ Act), it cannot lead to an infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f taxable services. 8. Questions raised by the applicant are accordingly answered as follows:- Question No.1 Whether service tax is applicable on the services rendered by the applicant to the overseas entity for contract with:- (a) Domestic airlines who operate domestic flights to India; (b) Domestic airlines who operate international flights; and (c) Foreign entities who operate international flights? Answer: Yes Question No.2 Whether service tax is applicable on the services rendered by the applicant directly to: (a) Domestic airlines who operate domestic flights to India; (b) Domestic airlines who operate international flights; and (c) Foreign entities who operate international flights? Answer: Yes Question No. 3. Whether in view of the provisions relating to Sections 51 and 53 of the SEZ Act, 2005, service tax will not be chargeable on the services rendered within the SEZ? Answer: Service tax will be chargeable on the services rendered within the SEZ unless specifically exempted under the SEZ Act or under the Finance Act, 1994 or any Rules or Notifications there under. There is no such exemption presently available in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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