SEZ service tax exemption applies to developer services for authorised operations, absent breach of valid conditions.

Services provided by an SEZ developer to SEZ units for authorised operations are exempt from service tax under section 26(1) of the Special Economic Zone Act, 2005. That exemption remains effective unless conditions validly prescribed under section 26(2) are shown to have been breached. The notifications relied upon by Revenue did not create a basis to levy service tax on such services, and no prescribed condition was shown to be violated. On that construction, the demand lacked authority of law, and the related interest and penalties could not be sustained.

---

---

Issues: Whether service tax was payable on services provided by an SEZ developer to units in the special economic zone, and whether the exemptions under the Special Economic Zone Act, 2005 were defeated by the conditions in the cited notifications.

Analysis: Clause (e) of section 26(1) of the Special Economic Zone Act, 2005 grants exemption from service tax on taxable services provided to a developer or unit for authorized operations in a special economic zone. That entitlement is subject to section 26(2), under which the Central Government may prescribe the manner and conditions for granting such benefits. The record did not show any prescribed condition under section 26(2) that had been violated. The notifications relied upon by Revenue governed exemption for SEZ units and did not create a basis to levy service tax on services provided by the SEZ developer to SEZ units. On that construction, the impugned demand lacked authority of law.

Conclusion: The services provided by the SEZ developer to units in the SEZ were covered by section 26(1) of the Special Economic Zone Act, 2005, and service tax was not leviable on them.

Final Conclusion: The demand, interest, and penalties could not be sustained and the appeal succeeded.

Ratio Decidendi: Services provided to a developer or unit in an SEZ for authorized operations are exempt from service tax under section 26(1) of the Special Economic Zone Act, 2005, unless specific conditions validly prescribed under section 26(2) are shown to have been breached.

---