SEZ service-tax exemption covers authorised operational services received outside the zone, while absent suppression defeats extended limitation.

Services provided to an SEZ unit for authorised operations are exempt from service tax under the SEZ Act and Rules even when physically performed outside the SEZ. The statutory exemption does not impose a territorial performance condition, and the SEZ Act's overriding effect prevents delegated legislation from narrowing that entitlement. The extended limitation period under the Finance Act is unavailable where the dispute concerns statutory interpretation, transactions are recorded in the assessee's accounts, and there is no fraud, wilful misstatement, or suppression with intent to evade tax. The demand therefore lacked substantive and limitation-based support, with consequential relief available.

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Issues: (i) Whether cargo handling services physically performed outside a Special Economic Zone but received and utilised by an SEZ unit for authorised operations qualify for service-tax exemption; (ii) Whether the extended limitation period could sustain the demand.

Issue (i): Whether cargo handling services physically performed outside a Special Economic Zone but received and utilised by an SEZ unit for authorised operations qualify for service-tax exemption.

Analysis: Section 26(1)(e) of the Special Economic Zones Act, 2005 and Rule 31 of the Special Economic Zones Rules, 2006 grant exemption for taxable services provided to an SEZ unit for authorised operations, without requiring that the service be physically performed within the SEZ. Section 51 gives the SEZ Act overriding effect; hence, Notification No. 4/2004-ST cannot impose a territorial restriction that diminishes the statutory exemption. The recipient's SEZ status and use of the services for authorised operations were undisputed.

Conclusion: Services received and used by the SEZ unit for authorised operations are exempt notwithstanding that they were physically rendered outside the SEZ. This issue is decided in favour of the assessee.

Issue (ii): Whether the extended limitation period could sustain the demand.

Analysis: The dispute concerned the interpretation of the SEZ Act and the Finance Act, 1994. The acceptance of reasonable cause for setting aside the penalty was incompatible with fraud, wilful misstatement, or suppression with intent to evade tax. The transactions were recorded in the assessee's accounts and detection during audit did not establish such suppression.

Conclusion: The extended period under the proviso to Section 73(1) of the Finance Act, 1994 was not invocable. This issue is decided in favour of the assessee.

Final Conclusion: The service-tax demand lacked both substantive and limitation-based support, entitling the assessee to consequential relief.

Ratio Decidendi: A statutory exemption for services provided to an SEZ unit for authorised operations cannot be restricted by delegated legislation based solely on the place where the services are physically performed.

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