Central Government has issued a notification no. 9/2009 ST dated 3-3-2009 to grant conditional exemption to units located in SEZ or developers of SEZ from service tax.

According to the new exemption notification, service provider shall not be exempt from payment of service tax. Instead has to pay service tax at appropriate rate on the taxable services provided by him to the units located in SEZ or developer of SEZ.

On the other side, the units located in SEZ or developers of SEZ  are entitled to claim exemption by filing refund claim of service tax paid by the provider of service tax.

Consequently, notification no. 4/2004 ST dated 31-3-2004 has been withdrawn.

Exemption through refund mode: SEZ units may claim refund for service tax paid by providers under revised scheme. Service tax treatment for SEZ units and developers is revised to an exemption through refund mode: service providers must pay service tax on services to SEZ units or developers, while the SEZ units or developers may claim exemption by filing refund claims for the service tax paid; the previous notification granting direct exemption has been withdrawn.