Govt declares new service tax policy for SEZ units

It's a move that is bound to raise the hackles of the special economic zones (SEZ) lobby. On Tuesday, the Finance Ministry came out with a new notification on the levy of service tax for SEZ developers and units.

As per the new norms, SEZ developers and units will get an exemption on service tax. However, they will have to first pay the service tax, and then file for refunds.

The norms also state that the claims can be filed within 6 months of actual payment of service tax.

Tax experts say the move is fraught with complications, and could increase the procurement cost for developers and units. It also means the money will take a while to come back to the SEZ's kitty.

In addition, SEZ Commissioners will decide on which operations are entitled for service tax exemption.

Experts say this move will give the commissioners significant discretionary power.

But the controversy does not end here. The new notification effectively makes a change to a taxation rule for SEZs which are covered under a separate act. Experts say this could well become another bone of contention.