2023 (9) TMI 73 - AT - Service Tax

SEZ developer exempt from service tax within SEZ; Revenue failed to prove violation

M/s. Hiranandani Builders Versus Commissioner of Service Tax-VII, Mumbai

The Tribunal held that the SEZ developer was not liable to pay service tax on services provided to units within the SEZ as the Revenue failed to ... Levy of Service tax - amounts received from service receivers towards providing premises on lease and for installation of ATM machine and tower - benefits provided under subsection (1) of Section 26 of SEZ Act, 2005 denied - violation of conditions of N/N. 04/2004-ST dated 31.03.2004 and subsequently conditions specified under N/N. 09/2009-ST dated 03.03.2009 and afterwards conditions of N/N. 17/2011-ST dated 01.03.2011. HELD THAT:- During the entire proceedings including hearing, Revenue could not place on record as to which are the conditions that are prescribed by the Central Government under sub-section (2) of Section 26 of SEZ Act, 2005. Further, it is noted that the said Notifications such as 04/2004, 09/2009 and 17/2011 are providing exemptions to the units under SEZ. Here the question is which provision requires the appellant who is a developer of SEZ to pay service tax. The conditions under the said notifications either decide entitlement of the units for exemption, but the provisions under said Section 26 provide that the units are exempted from levy of service tax when they receive services. So, clear interpretation provides that when the present appellant has provided services only to the units under SEZ, the said services were covered by the provisions of sub-section (1) of Section 26 of SEZ Act, 2005. Revenue could not place on record any conditions prescribed under sub-section (2) of Section 26 ibid - the issue is covered by the provisions of sub-section (1) of Section 26 ibid. Therefore, Revenue does not have authority of law to collect service tax on services provided by SEZ developer to units in SEZ. The impugned order is not in accordance with the provisions of law - Appeal allowed. Issues Involved:The issues involved in the judgment are the applicability of service tax on services provided by an SEZ developer to units within the SEZ, compliance with conditions under relevant notifications, and the authority of law to collect service tax in such cases.Comprehensive Details:Issue 1: Applicability of Service Tax on Services Provided by SEZ DeveloperThe appellant, an SEZ developer, was subjected to audit by Revenue for receiving amounts towards lease rent and maintenance. The Revenue alleged that the appellant violated conditions of various notifications and demanded service tax of Rs.25,90,96,248 for the period from October 2007 to March 2012. The appellant contended that as an SEZ developer, services provided to units within the SEZ were exempt from service tax under Section 26 of SEZ Act, 2005. The Tribunal observed that the provisions of the SEZ Act exempt services provided to units in SEZ, subject to compliance with conditions prescribed by the Central Government. Since Revenue failed to demonstrate any violation of such conditions, the Tribunal held that the appellant was not liable to pay service tax on services provided to units within the SEZ. Therefore, the impugned order was set aside, and the appeal was allowed.Issue 2: Compliance with Conditions under Relevant NotificationsThe Revenue alleged that the appellant violated conditions under Notifications No. 04/2004, 09/2009, and 17/2011, thereby disqualifying them from the benefits under Section 26 of SEZ Act, 2005. However, the Tribunal noted that the notifications provided exemptions to units within the SEZ, while Section 26 of the SEZ Act exempted services provided by SEZ developers to such units. The Tribunal emphasized that the conditions under the notifications did not override the exemption provided under Section 26. Since Revenue could not establish any violation of conditions prescribed under Section 26(2) of the SEZ Act, the Tribunal held that the appellant was entitled to the exemption under Section 26(1) and was not liable to pay service tax.Issue 3: Authority of Law to Collect Service TaxThe Tribunal scrutinized the provisions of the SEZ Act and relevant notifications to determine the authority of law for collecting service tax on services provided by the SEZ developer to units within the SEZ. It was established that the provisions of Section 26 of the SEZ Act exempted services provided to units in SEZ, subject to compliance with conditions prescribed under Section 26(2). Since Revenue failed to demonstrate any violation of such conditions, the Tribunal concluded that Revenue did not have the legal authority to collect service tax on services provided by the SEZ developer to units within the SEZ. Consequently, the impugned order was set aside, and the appeal was allowed.(Order pronounced in the open court on 28.08.2023)