SEZ Act exemption prevails over external notification formalities, so substantive entitlement cannot be defeated by procedural non compliance.

Whether SEZ Act exemptions under Section 26 can be denied for failure to comply with Finance Act notifications was addressed: the Tribunal held that the SEZ Act grants substantive exemption for authorised SEZ operations and, by virtue of the SEZ Act's overriding effect, charging provisions under the Finance Act and ancillary notification formalities (including non production of Form A 2) cannot defeat that entitlement; accordingly the demand premised solely on procedural non compliance was set aside and the appeal allowed in favour of the assessee.

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Issues: Whether exemption from service tax under Section 26 of the Special Economic Zones Act, 2005 for services provided to SEZ units/developers can be denied on the ground of procedural non-compliance with notifications (including failure to obtain Form A-2) issued under the Finance Act, 1994.

Analysis: The Tribunal examined the statutory scheme in which Section 26 of the Special Economic Zones Act, 2005 grants exemptions to Developers and Units and Section 51 declares the SEZ Act to have overriding effect over inconsistent provisions of other laws. The Court considered the interplay between the SEZ Act and exemption notifications issued under the Finance Act, 1994, and noted authority holding that where the SEZ Act provides exemption and prescribes terms by rules (including Rule 22 and Rule 47(5) of the SEZ Rules, 2006), the exemptions under Section 26 are not made subject to additional conditions in notifications under other statutes. The Tribunal relied on precedents (including decisions upheld by the Supreme Court) establishing that (a) charging provisions in other statutes cannot operate where Section 26 and Section 51 operate to exempt supplies for authorized SEZ operations, and (b) procedural deficiencies in complying with notification formalities do not defeat the substantive entitlement to exemption under the SEZ law. The analysis also recognised Article 265 (taxes to be levied only by authority of law) and Section 66B of the Finance Act, 1994 as the charging provision that is rendered inapplicable by the overriding SEZ statute in respect of authorised operations.

Conclusion: The denial of exemption on the ground of procedural non-compliance (including non-production of Form A-2) is not sustainable where the substantive entitlement under Section 26 of the Special Economic Zones Act, 2005 exists. The adjudged demand of service tax confirmed on that ground is set aside and the appeal is allowed in favour of the assessee.

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