Service Tax Exemption Not Automatic for SEZ Supplies, Authorised Operations Proof Mandatory: CESTAT [Read Order]

The Chennai bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that service tax exemption for services supplied to SEZ (Special Economic Zone) units/developers is not automatic, and can be claimed only when the service provider proves that the services were used for “authorised operations” under SEZ Act.

In M/s Trishaa Rose Garden Pvt. Ltd, the appellant is engaged in operating a plant nursery and in providing garden-related services such as landscaping, planting, horticultural operations and maintenance of gardens, parks, lawns, avenues and green belts for municipal authorities and corporate entities.

The appellant challenged the service tax demand issued to them where the department classified the services including landscaping offered by them as taxable. They claimed that they were exempted under SEZ act.

However, the Tribunal rejected the assessee’s claim of exemption on landscaping and garden maintenance services rendered to SEZ entities.

The bench observed that mere recipient status as an SEZ unit does not make every service exempt, and the burden lies on the service provider to produce documentary evidence showing approval by the SEZ Approval Committee and compliance with SEZ Rules.

‘Section 26(1)(e) of SEZ Act provides exemption from service tax on taxable services provided to a developer or unit to carry on authorised operations and prescribes three mandatory conditions The recipient must be an SEZ unit or developer; The service must be taxable under the Finance Act, 1994; The service must be used for authorised operations. We find that the exemption is not unconditional and is activity-specific, not recipient-specific’ said the bench of Vasa Seshagiri Rao (Technical member) and P. Dinesha (Judicial member).

The CESTAT applied the same to the matter. It found that the appellant failed to produce any document to show that landscaping/garden maintenance services were approved as authorised operations.

The Tribunal also noted that such services are generally ancillary amenities and cannot be presumed to be part of core SEZ operations unless specifically approved.

It held that exemption cannot be claimed merely because services were rendered to an SEZ unit, and the onus squarely rests on the service provider to prove eligibility.

According to the tribunal, ‘Merely because the recipient happens to be an SEZ unit does not render all services rendered to it exempt. The onus lies squarely on the service provider to establish eligibility.’

Therefore, the bench held that the appellant was not entitled to service tax exemption for supplies made to SEZ units, since the mandatory approval/documentation requirements were not met. The exemption claim was rejected.

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