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Service tax liability on sez

ARINDAM (Manager Internal Audit) (167 Points)

05 June 2013

Dear Friends

can u guide me whether there are any provision reagrding payment of service tax liability where service has been supplied to the sez.Is there any kind of reverse charge mechanism (Rate @ 6%)regarding service provided to the sez.plz suggest me.

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PRAVEEN KUMAR (MBA (Finance) B.Com.(P)) (3438 Points)
Replied 06 June 2013

Hi,

Services, provided to a developer or units of Special Economic Zone exempt [Not. No. 17/2011-ST dated 1.3.2011]

Taxable services provided to the developer/unit of SEZ in relation to authorized operations is exempt from service tax subject to the certain conditions.

Modus Operandi of exemption

The exemption operates in the following manner:

The exemption is applicable only in respect of "specified services" provided to the SEZ developer/unit. "Specified services" means those services which are required in relation to the authorized operations and which have been approved by the Approval Committee of the SEZ.

If the "specified services" are wholly consumed within the SEZ, then the service provider is not required to charge service tax to the service recipient (developer or units of SEZ). A specified taxable service shall be considered to be "wholly consumed" within the SEZ if the relevant criteria given below as applicable to the service is satisfied. The criteria are as follows:

such services as are listed in Table A of Appendix 1 (e.g., interior decorator, architect, construction services, etc.) would be considered as "wholly consumed" in the SEZ if they are in relation to an immovable property situated within the SEZ; or

such services as are listed in Table B of Appendix 1 (e.g. steamer agent, custom house agent, cargo handling, storage and warehousing, tour operator services, etc.) would be considered as "wholly consumed" in the SEZ if they are wholly performed within the SEZ; or

such services other than those falling under (a) and (b) above (See Table C of Appendix 1), would be considered as "wholly consumed" only if they are provided to a SEZ Developer/Unit, who does not own or carry on any business other than the operations in the SEZ. [In this regard it is to be noted that SEZ developer /unit who does not own or carry out any business other than SEZ operation would require to furnish the decoration in the prescribed form].

In respect of "specified services" that are not consumed inside the SEZ, only a SEZ developer/unit would be the person who is entitled to claim the exemption in respect of the "specified services" provided to it by way of refunds. The service provider shall not be eligible to claim an exemption with respect to such specified services. It is, however, to be noted that with regard to services that are not "specified services" there is no exemption under the service tax law but the service provider may claim an exemption under the SEZ Act.

The SEZ developer/unit claiming exemption, is required to pay service tax on such "specified services" that are not consumed inside the SEZ to the service provider and thereafter claim refund in accordance with the procedure below.

In cases where the specified taxable services are not "wholly consumed" within the SEZ i.e. they are shared for both SEZ operations as well as domestic tariff area operations, the refund of service tax would be available on pro-rata basis i.e. the ratio of SEZ turnover to total turnover.

In case where the SEZ developer / unit is liable to pay tax under reverse charge he may claim exemption if the specified services are wholly consumed within the SEZ. However, in cases where the specified services are not wholly consumed within the SEZ the SEZ developer / unit would have to pay service tax to the Government and thereafter claim refund.

Condition for claiming exemption (Refund)

In order to claim the exemption the SEZ developers/units must satisfy the following conditions:

The "specified services" must actually be used in the authorized operations.

The service tax on "specified services" must be actually paid by the SEZ developer/unit.

The SEZ developer/unit has not claimed cenvat credit of service tax paid on the specified services.

The SEZ developer/unit shall maintain proper account of receipt and utilisation of the taxable services for which exemption is claimed.

Procedure for claiming refund (Exemption)

The SEZ developer/unit has to file a refund claim with the jurisdictional Assistant/Deputy Commissioner ("AC/DC") within one year [prior to 1.3.2011 it was six months] (or such extended period as the AC/DC may allow) from the date of actual payment of service tax to the service provider.

If the SEZ developer/unit is not registered under the Central Excise Act, 1944 or the Finance Act, 1994 (Service tax law) it shall prior to the filing of refund claim make an declaration, in the prescribed form to the jurisdictional AC/DC for allotment of a Service tax Code number (STC number) who may after due verification allot the STC number within 7 days of the receipt of the said application.

The refund claim shall be accompanied by the following documents, viz.:-

copy of list of "specified services" in relation to authorized operations approved by Approval Committee;

invoice / bill / challan issued by the service provider and proof of payment of service tax to the service provider in original;

a declaration by SEZ developer/Unit to the effect that –

the said "specified services" have been received by it in relation to its authorised operations in the SEZ.

the proper account of the specified services received and used for authorized operations are maintained and same shall be produced to the officer sanctioning refund on demand.

the accounts / documents furnished by the SEZ developer/ unit as a proof of payment of service tax to input service provider are true and correct in all respects.

The jurisdictional AC/DC may after satisfying himself that the said specified services have been used for the authorized operations grant refund of service tax paid on the said services.

Note: As per the Special Economic Zones Act, 2005 (‘SEZ Act’) no service tax is payable on services provided to a developer or unit (including a unit under construction) to carry on the authorized operations in a Special Economic Zone. [Section 26(e) of the SEZ Act read with Rule 31 of SEZ Rules, 2006]. These provisions override anything contrary in any other law for the time being in force [Section 51 of the SEZ Act]. Hence the exemption provided under the SEZ Act, 2005 maybe more beneficial to the assessee. The provisions of SEZ Act maybe more relevant in the following cases:

where services other than specified services are provided to SEZ developer/unit

where specified services are not consumed inside the SEZ, the SEZ unit would prefer to request the service provider not to charge service tax instead of opting for refund mechanism provided under service tax.