SEZ service tax exemption for construction services extended without separate Approval Committee clearance, and penalties failed for lack of suppression.

SEZ construction services provided by a sub-contractor were held eligible for service tax exemption where the work was approved by the competent SEZ authority through a work order issued by the Deputy Commissioner, and no separate Approval Committee clearance was required. As exemption applied, the service tax demand could not survive, and the penalties were also set aside because the record did not show suppression of facts or contumacious conduct; tax and interest already paid before the show-cause notice did not justify penal action.

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Issues: (i) Whether the appellant, a sub-contractor providing civil construction services for work allotted in the SEZ, was entitled to exemption from service tax under the SEZ exemption notifications without separate approval from the Approval Committee; (ii) Whether the demand of tax and the penalties under Sections 77 and 78 of the Finance Act, 1994 were sustainable.

Issue (i): Whether the appellant, a sub-contractor providing civil construction services for work allotted in the SEZ, was entitled to exemption from service tax under the SEZ exemption notifications without separate approval from the Approval Committee.

Analysis: The service was rendered for construction of the SDF Block in the SEZ pursuant to the work order issued by the Deputy Commissioner, SEZ, through the operating agency and main contractor. The notification benefit was held to extend to services provided for consumption within the SEZ when the work was approved by the competent SEZ authority. In these facts, the work order issued by the Deputy Commissioner amounted to the requisite approval, and no further approval from the Approval Committee was required.

Conclusion: The appellant was entitled to exemption from service tax for the SEZ construction services.

Issue (ii): Whether the demand of tax and the penalties under Sections 77 and 78 of the Finance Act, 1994 were sustainable.

Analysis: Once the exemption was held available, the demand of Rs. 17,51,124/- could not survive. The Tribunal also found no suppression of facts or contumacious conduct on the part of the appellant, and noted that the additional tax and interest already paid before the show-cause notice was not in dispute on taxability. In the absence of the necessary ingredients for penal action, the penalties were not justified.

Conclusion: The demand and the penalties under Sections 77 and 78 of the Finance Act, 1994 were set aside.

Final Conclusion: The appeal succeeded, the service tax demand was annulled, and the penalties were deleted with consequential relief.

Ratio Decidendi: Where SEZ services are rendered pursuant to approval by the competent SEZ authority for consumption within the SEZ, no additional Approval Committee clearance is required, and penalties cannot be sustained absent suppression or contumacious conduct.

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