SEZ service tax exemption cannot be denied where cargo-related services are substantively consumed by the SEZ unit.

Service tax exemption under Notification No. 4/2004-ST could not be denied for services provided to an SEZ unit on the ground that they were not consumed entirely within the SEZ, because the services were used for import and export cargo operations and were, in substance, consumed by the SEZ unit. In the statutory setting of the SEZ Act, 2005, section 26 grants exemptions and concessions and section 51 gives the Act overriding effect, so the notification could not be read restrictively to defeat SEZ-related benefits. The denial of exemption was therefore unjustified, and the service tax demand, interest, and penalties could not stand.

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Issues: Whether service tax exemption under Notification No. 4/2004-ST could be denied on the ground that the services provided to the SEZ unit were not consumed entirely within the SEZ.

Analysis: The services were provided to the SEZ unit for import and export cargo operations and were, in substance, consumed by the SEZ unit. Section 26 of the Special Economic Zones Act, 2005 grants exemptions and concessions, and Section 51 of that Act gives it overriding effect over other laws. In that statutory setting, the exemption notification could not be read restrictively so as to defeat the benefit available to SEZ-related services. The view taken also accorded with the earlier Tribunal decision on a similar issue.

Conclusion: The denial of exemption was unjustified and the demand of service tax, interest, and penalties could not stand.

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