SEZ export of services exemption prevails over service tax rules for foreign recipients; reimbursement demand remanded.

Services supplied from a Free Trade Warehousing Zone to foreign recipients for consideration in convertible foreign exchange were treated as export of services under the Special Economic Zones Act, 2005. The Act's exemption for taxable services supplied from a Special Economic Zone to a place outside India, together with its overriding effect, prevailed over inconsistent service tax rules and place-of-provision objections, so the service tax demand on storage and warehousing services was set aside. Amounts described as reimbursements lacked sufficient supporting documents, so the related demand was remanded for fresh adjudication.

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Issues: (i) Whether storage and warehousing services rendered from a Free Trade Warehousing Zone to foreign clients and paid for in convertible foreign exchange constituted export of services and were exempt from service tax. (ii) Whether the demand raised on other service-related amounts described as reimbursements required reconsideration for want of supporting documents.

Issue (i): Whether storage and warehousing services rendered from a Free Trade Warehousing Zone to foreign clients and paid for in convertible foreign exchange constituted export of services and were exempt from service tax.

Analysis: The Special Economic Zones Act, 2005 defines "services" and "export" in a manner that covers services supplied from a Special Economic Zone to a person outside India. Section 26 grants exemption from service tax on taxable services provided from a Special Economic Zone or a Unit to any place outside India, and Section 51 gives the Act overriding effect over inconsistent laws. Since the services were rendered from the FTWZ, the recipient was outside India, and consideration was received in convertible foreign exchange, the Special Economic Zones Act prevailed over the service tax rules and the place-of-provision objection could not defeat the statutory exemption.

Conclusion: The demand of service tax on storage and warehousing services was not sustainable and was set aside.

Issue (ii): Whether the demand raised on other service-related amounts described as reimbursements required reconsideration for want of supporting documents.

Analysis: The record did not contain sufficient documentary evidence to conclusively establish the nature of the amounts as reimbursable expenses. A further opportunity to produce supporting material was therefore warranted, and the matter required fresh examination by the adjudicating authority.

Conclusion: The demand relating to the other services was remanded for fresh consideration.

Final Conclusion: The exemption issue was decided in favour of the assessee, while the remaining demand was sent back for reconsideration.

Ratio Decidendi: Where services are provided from a Special Economic Zone to foreign recipients for convertible foreign exchange, the special exemption scheme under the Special Economic Zones Act prevails over inconsistent service tax provisions and rules.

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