2011 (6) TMI 394 - AT - Service Tax

Appeal Granted: Exempted Services for SEZ Units

Sobha Developers Ltd. Versus Commissioner of Central Excise, LTU, Bangalore

The Tribunal allowed the appeals filed by the appellant, Sobha Developers Ltd., and granted consequential relief. The services provided to SEZ units were ... Constructions services provided by the appellant to the SEZ units - Whether would amount to export of service and would hence qualify for the exclusion of rule 6(1) of the Cenvat Credit Rules, 2004 - Revenue contended the same as exempted services - applicability of Notification No. 4/2004-ST, dated 31-3-2004 - Held that:- According to rule 2(e) of Cenvat Credit Rules, 2004, 'exempted service' means taxable services which are exempted from the whole of the service tax leviable thereon and includes service on which no service tax is leviable under section 66 of the Finance Act. Exemption contemplated under rule 2(e) of Cenvat Credit Rules, 2004 is not an absolute and unconditional exemption and rule 6(1) does not cover exemptions which are subject to condition and tax is recoverable from the supplier or from the receiver if the conditions are not fulfilled. As in Bajaj Tempo Ltd. v. CCE (1993 (8) TMI 189 - CEGAT, BOMBAY) view was taken that even though Notification No. 217/86, dated 2-4-1986 is an exemption Notification, it cannot be equated with other exemptions and accordingly, it was held that when finished goods were cleared under Notification No. 217/86, it would not lead to application of rule 57C of Central Excise Rules which is similar to the provisions of Cenvat Credit Rules. Further, case of Sterlite Industries (I) Ltd. v. CCE (2004 (12) TMI 108 - CESTAT, MUMBAI) upheld by the Hon'ble High Court of Bombay (2008 (8) TMI 783 - BOMBAY HIGH COURT) - Decided in favor of assessee. Issues Involved:1. Whether the service provided by the appellant to SEZ units amounts to export of service and qualifies for exclusion under rule 6(1) of the Cenvat Credit Rules, 2004.2. Whether the exemption Notification No. 4/2004-ST, dated 31-3-2004 is conditional and does not attract the provisions of rule 6(1) of the Cenvat Credit Rules, 2004.Issue-wise Detailed Analysis:1. Export of Service to SEZ Units:The appellant, Sobha Developers Ltd., contended that services provided to SEZ units should be treated as export of services under the SEZ Act, 2005, and not as exempted services. They argued that under section 2(m)(ii) of the SEZ Act, services rendered to SEZ units by a Domestic Tariff Area (DTA) unit are treated as export transactions. Additionally, section 26 of the SEZ Act provides for exemptions on taxes for services provided to SEZ units.The Revenue, however, maintained that services provided to SEZ units are exempted services as per Notification No. 4/2004-ST, dated 31-3-2004, issued under section 93 of the Finance Act, 1994, and not export of services. According to the Export of Services Rules, 2005, export of services requires that the service be provided from India and used outside India, and payment for such service be received in convertible foreign exchange. Since these conditions were not met, the services could not be classified as export of services.The Tribunal concluded that the provisions of the SEZ Act, Cenvat Credit Rules, and Export of Service Rules indicate that services provided to SEZ developers are considered exempted services and not exports. The Tribunal noted that there is no conflict between the SEZ Act and the Cenvat Credit Rules. The SEZ Act does not deal with the availment of Cenvat credit by domestic service providers, and the provisions of rule 6 of the Cenvat Credit Rules apply to such cases.2. Conditional Exemption Notification:The appellant argued that the exemption Notification No. 4/2004-ST is conditional, and therefore, services provided under this notification should not be considered exempted services under rule 6(1) of the Cenvat Credit Rules. They relied on the decisions in Bajaj Tempo Ltd. v. CCE and Sterlite Industries (I) Ltd. v. CCE, where it was held that conditional exemptions do not attract the provisions of rule 57C of the Central Excise Rules, which is similar to rule 6 of the Cenvat Credit Rules.The Tribunal agreed with the appellant's contention, citing the decisions in Bajaj Tempo Ltd. and Sterlite Industries (I) Ltd. It held that Notification No. 4/2004-ST is a conditional exemption, and therefore, the restrictions under rule 6 of the Cenvat Credit Rules do not apply. The Tribunal concluded that the appellant is not required to maintain separate accounts for input services used in providing services to SEZ units or to pay 8% of the value of exempted services.Conclusion:The Tribunal allowed the appeals filed by the appellant, Sobha Developers Ltd., and granted consequential relief. The services provided to SEZ units were held to be exempted services under Notification No. 4/2004-ST, and the restrictions under rule 6 of the Cenvat Credit Rules were not applicable due to the conditional nature of the exemption notification.