SEZ service tax exemption applies to containers used for authorised operations, even with partial use outside the Zone.

Service tax exemption was available for containers supplied to SEZ units for authorised operations, even where the containers were used partly outside the Special Economic Zone. Notification No. 4/2004-ST was read harmoniously with section 26 of the Special Economic Zones Act, 2005 and Rule 31 of the Special Economic Zone Rules, 2006, which extend exemption to taxable services provided to a Developer or Unit for authorised operations. The regime does not require exclusive consumption of the service within the Zone. On that basis, the supply of containers to SEZ units fell within the exemption and the service tax demand was not sustainable.

---

---

Issues: Whether service tax exemption was available for taxable services of containers supplied to units in a Special Economic Zone for authorised operations, even when the containers were used partly outside the Zone.

Analysis: Notification No. 4/2004-ST and the later statutory regime under the Special Economic Zones Act, 2005 and the Special Economic Zone Rules, 2006 were read harmoniously. Section 26 of the Special Economic Zones Act, 2005 grants exemption from service tax on taxable services provided to a Developer or Unit for carrying on authorised operations in a Special Economic Zone, and Rule 31 of the Special Economic Zone Rules, 2006 similarly extends the exemption to taxable services rendered for authorised operations. The provision does not impose a restriction that the service must be consumed only within the Zone, and the services in question were used by the SEZ units for authorised operations.

Conclusion: The service tax demand was not sustainable and the supply of containers to SEZ units was exempt from service tax.

---