SEZ co-developer wins service tax exemption appeal; Tribunal rules in favor.

The Tribunal ruled in favor of the appellant, a co-developer of SEZs, regarding exemption from service tax on services provided to SEZ units. The Tribunal held that the SEZ Act's provisions, particularly Section 26, override the Finance Act's conditions, and the appellant was entitled to exemption under the SEZ Act. Additionally, the Tribunal classified signage income as part of renting immovable property for authorized operations, exempting it from tax. The Commissioner's demands for service tax on both rental and signage services were deemed unjustified, and the appellant's appeal was allowed, setting aside the previous order.

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Issues Involved:
1. Exemption from service tax on services rendered to SEZ units.
2. Classification and taxability of signage income.

Detailed Analysis:

1. Exemption from Service Tax on Services Rendered to SEZ Units:

The appellant, a co-developer of four SEZs, rented out immovable property and charged rent and signage fees to SEZ units. The appellant claimed exemption from service tax based on the SEZ Act, arguing that the services were used for authorized operations. However, the Commissioner confirmed the demand for service tax, stating that the appellant did not comply with the conditions of Notification No. 9/2009-ST dated March 3, 2009.

The appellant contended that the services were exempt under the SEZ Act, which has overriding provisions. The SEZ Act, particularly Section 26, provides exemptions from service tax for services used in authorized operations. Section 51 of the SEZ Act gives it an overriding effect over other laws, including the Finance Act.

The Tribunal noted that the Notification dated March 3, 2009, issued under Section 93 of the Finance Act, required exemption by way of refund, which was inconsistent with the SEZ Act. The SEZ Act and its rules (Rule 31) prescribe the manner of exemptions, which should prevail over the Finance Act. The Tribunal cited the Telangana and Andhra Pradesh High Court's decision in GMR Aerospace Engineering Limited, which supported the appellant's view that the SEZ Act's provisions override the Finance Act's conditions.

2. Classification and Taxability of Signage Income:

The appellant also rented space for SEZ units to display their names and charged signage fees. The Commissioner treated this as "sale of space or time for advertisement" and denied exemption, as it was not listed as an approved service.

The Tribunal held that the signage service was part of renting immovable property, essential for identification purposes, and used for authorized operations. Therefore, it should be exempt under the SEZ Act. Additionally, the Tribunal stated that merely classifying the service as advertisement did not change its nature as renting of immovable property. The Tribunal also clarified that the service did not fit the definition of "sale or space or time for advertisement" under Section 65(105)(zzzm) of the Finance Act.

Conclusion:

The Tribunal concluded that the Commissioner was not justified in confirming the demands for service tax on both the rental and signage services. The conditions of the Notification under the Finance Act were inconsistent with the SEZ Act, which provides overriding exemptions. The appeal was allowed, and the order dated December 23, 2015, was set aside.

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