SEZ service-tax refunds remain available for authorised operations even when approved services are not wholly consumed within the zone.

Service-tax refund for specified services used in an SEZ unit's authorised operations is not restricted by the requirement that services be wholly consumed within the SEZ. Section 26(1)(e) of the SEZ Act provides the exemption, while the relevant notification administers it through a refund mechanism where tax was paid. The wholly-consumed condition applies to ab initio exemption, not to refund claims. Refund may be proportionately restricted only where services are shared with DTA operations. In the absence of such sharing and where approved services relate to authorised operations, the SEZ Act prevails over inconsistent restrictions under service-tax law or notifications.

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Issues: Whether refund of service tax paid on specified services used for authorised operations of an SEZ unit can be denied because the services were not wholly consumed within the SEZ.

Analysis: Section 26(1)(e) of the Special Economic Zones Act, 2005 grants service-tax exemption for taxable services provided to an SEZ unit for authorised operations. Notification No. 17/2011-Service Tax dated 01.03.2011 regulates that exemption through a refund mechanism where tax has been paid. The requirement concerning services being wholly consumed within the SEZ applies only to the option of obtaining ab initio exemption; it does not restrict refund of tax paid on specified services actually used for authorised operations. The notification permits proportionate restriction only where services are shared between SEZ and DTA operations, and no such sharing was established. The services were approved specified services and no finding established that they were unconnected with authorised operations. The SEZ Act prevails over inconsistent restrictions under the Finance Act, 1994 or notifications issued thereunder.

Conclusion: Refund of Rs.13,37,485 on services used for authorised operations could not be denied merely because those services were not wholly consumed within the SEZ; the assessee was entitled to that refund.

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