SEZ service tax exemption applies to employee transport services used for authorised operations, even from outside the zone.

Service tax exemption was available for rent-a-cab or tour operator services used to transport employees of a Special Economic Zone unit for authorised operations. The exemption notification was construed harmoniously with the SEZ framework, and services rendered to a unit for authorised activity were treated as covered even though employees were picked up from residences outside the SEZ. The Tribunal followed earlier decisions taking the same view, and the service tax demand was held unsustainable.

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Issues: Whether service tax was payable on rent-a-cab or tour operator services rendered to a unit in a Special Economic Zone for transporting employees, and whether exemption under the SEZ framework and Notification No. 4/2004-ST was available.

Analysis: The exemption notification was read harmoniously with the statutory SEZ scheme. The relevant SEZ provisions entitled a developer or unit to exemption from service tax on taxable services provided for authorised operations in the SEZ, and the SEZ Rules likewise extended exemption to services rendered to a unit for such operations. The fact that the employees were transported from residences outside the SEZ did not defeat the exemption where the services were rendered to the SEZ unit for its authorised activity. The reasoning followed earlier Tribunal decisions applying the same construction to SEZ-linked services.

Conclusion: The service tax demand was not sustainable and the assessee was entitled to the benefit of exemption.

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