High Court rules no service tax as SEZ unit did not charge DTA unit. Service tax only applies when services are charged. SEZ and DTA units not separate legal entities.

The High Court upheld the dismissal of the Revenue's appeal, ruling that no service tax was payable as the SEZ unit did not charge the DTA unit for the services provided. The court emphasized that service tax is only applicable when services are actually charged for, which was not the case here. The court concluded that the SEZ and DTA units, although distinct for accounting purposes, were not separate legal entities, and therefore, the principle of mutuality did not apply.

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Issues Involved:
1. Maintainability of the appeal before the High Court.
2. Liability of the respondent to pay service tax for services provided by its SEZ unit to its DTA unit.
3. Interpretation of statutory provisions regarding service tax and Special Economic Zones.

Issue-wise Analysis:

1. Maintainability of the Appeal Before the High Court:
The first issue was whether the appeal against the CESTAT judgment was maintainable before the High Court or should be directed to the Supreme Court under section 35(L) of the Central Excise Act. A Division Bench had previously resolved this issue, concluding that the appeals were maintainable before the High Court in terms of section 35F of the Central Excise Act, 1994.

2. Liability of the Respondent to Pay Service Tax:
The core issue was whether the SEZ unit and the DTA unit of the respondent company could be considered separate entities for the purpose of service tax. The adjudicating authority had held that the SEZ and DTA units were distinct and separate, citing rule 4 of the Service Tax Rules, 1994, and rule 19(7) of the Special Economic Zones Rules, 2006. The SEZ unit had provided various business support services to the DTA unit, which were taxable under the Finance Act, 1994. The respondent argued that one unit of a company cannot provide service to another unit of the same company, invoking the principle of mutuality. The Tribunal, however, sided with the respondent, stating that the SEZ and DTA units could not be considered separate persons for the purpose of service tax.

3. Interpretation of Statutory Provisions:
The High Court examined several statutory provisions, including sections 66 and 65(105) of the Finance Act, 1994, and sections 2(za), 2(zc), 7, and 30 of the Special Economic Zones Act, 2005. The court noted that SEZ units enjoy special tax exemptions and are required to maintain separate books of accounts, as per rule 19(7) of the Special Economic Zones Rules, 2006. Despite these separations, the court concluded that the principle of mutuality did not apply because the SEZ unit and DTA unit, while distinct for accounting purposes, were not separate legal entities.

Conclusion:
The court ultimately dismissed the Revenue's appeal, but on different grounds than the Tribunal. It held that no service tax was leviable because the SEZ unit had not charged the DTA unit for the services provided. The court emphasized that service tax could only be levied on services that carried an actual value, and in this case, no such value was charged. The appeal was dismissed, affirming that no service tax was due as the SEZ unit did not collect any charge for the services rendered to the DTA unit.

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