Revenue has no Authority to collect service tax on services provided by SEZ Developers to units in SEZ: CESTAT [Read Order]

The Mumbai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT)has held that revenue has no authority to collect service tax on services provided by sez developers to units in Special Economic Zone (SEZ)

M/s. Hiranandani Builders, the appellant is registered with Service Tax.  During the audit, it was noticed by Revenue that the appellant was receiving some amounts towards lease rent and maintenance. 

The revenue noticed that the appellant was receiving amounts for providing renting of immovable property and maintenance or repair services to various units which were categorized into three categories, viz. units which did not have SEZ status, units which did not have an approved list of services and units availing services before the approval was accorded. 

The Revenue stated that the appellant had violated conditions of Notification No. 04/2004-ST dated 31.03.2004 and subsequently, conditions specified under Notification No. 09/2009-ST dated 03.03.2009 and afterwards conditions of Notification No. 17/2011-ST dated 01.03.2011 and thereby the appellant was not entitled to any exemption.

The appellant was required to pay a service tax for the period from October 2007 to March 2012 on renting of immovable property service provided by the appellant to the units as classified. A show cause notice demanding service tax was issued.  The demand was raised by invoking the proviso to sub-section (1) of Section 73 of the Finance Act, 1994 and also had a proposal for imposition of penalties under Sections 76, 77 and 78 of the Finance Act, 1994. 

The appellant stated in its reply that the Central Government vide Notification dated 13.04.2007 granted permission to the appellant to develop an SEZ area at Powai village in Mumbai and, therefore, the amounts received from service receivers towards providing premises on lease and for installation of ATM and tower were not liable to service tax.  They have also further relied on the provisions of Section 26 and Section 51 of the Special Economic Zone Act, 2005. 

The original authority has confirmed the demand for service tax of Rs.25,90,96,248/- and further ordered the appellant to pay interest on the said amount as provided by Section 75 of the Finance Act, 1994.  Under the provisions of Section 78 of the Finance Act, 1994, a penalty of an equal amount was imposed on the appellant. 

The appellant has been an SEZ developer since 13.04.2007.  He has further submitted that as per Rule 11 of SEZ Rules, 2006, a developer cannot sell the land in SEZ and can allot the land on a lease basis to a person desiring to create infrastructure facilities for use by prospective units.  Accordingly, the developer, i.e. the appellant, has leased the land to various units for creating infrastructure facilities including facilities for mobile towers and ATMs. 

The amount received from service receivers towards providing premises on lease is not liable to service tax since the appellant is a SEZ developer.  He has further submitted that the original authority has confirmed the demand for the reason that the units to whom services were provided did not obtain approval from the Development Commissioner for procuring said services. Further submitted that Section 51 read with Section 26 of SEZ Act, 2005 has overriding effect on granting of exemptions. 

It was evident that Notification No. 04/2004 exempts taxable services provided to a developer of SEZ or a unit of SEZ by any service provider.  Notification No. 09/2009 dated 31.03.2009 exempts taxable services that are provided about authorized operations in an SEZ and received by a developer or units of an SEZ.  Notification No. 17/2011 exempts taxable service received by a unit located in an SEZ or received by a developer of SEZ. 

A two-member bench comprising Dr Suvendu Kumar Pati, Member (Judicial) and Mr Anil G Shakkarwar, Member (Technical) observed that revenue could not place on record any conditions prescribed under sub-section (2) of Section 26 of the act. 

Further held that the Revenue does not have the authority of law to collect service tax on services provided by SEZ developers to units in SEZ and set aside the impugned order while allowing the appeal.

To Read the full text of the Order CLICK HERE

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