SEZ signage income exempt from service tax where display space supports authorised operations and statutory exemption prevails

Signage income earned by an SEZ developer or co-developer for providing display space to SEZ units was treated as exempt from service tax when the activity formed part of authorised operations. The statutory exemption under the SEZ Act, read with section 2(w) and the SEZ Rules, was held to prevail over inconsistent refund-based conditions in exemption notifications. Classification of the activity as advertisement service did not sustain the demand. The Tribunal also noted that the negative list regime independently supported non-taxability for the relevant period, so the service tax demand could not survive.

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Issues: Whether signage income earned by a developer/co-developer in a Special Economic Zone for providing display space to SEZ units was exempt from service tax, and whether the exemption could be denied on the basis that the relevant notification prescribed refund-based conditions or that the activity was classifiable as advertisement service.

Analysis: The exemption under the Special Economic Zones Act, 2005 was held to flow from the statute itself for services used in authorised operations of an SEZ developer or unit. The expression "prescribed" under section 26(2) was read with section 2(w) and the SEZ Rules, and the statutory scheme was held to override inconsistent conditions in exemption notifications. The activity of providing space for display of names and signs to SEZ units was treated as part of services rendered for authorised operations, and the demand could not survive merely because the notification contemplated refund or because the department sought to classify the activity under advertisement service. The Tribunal also noted that the negative list regime independently supported non-taxability for the relevant period.

Conclusion: The signage income was held exempt from service tax and the demand was unsustainable.

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