SEZs to pay tax on services outside zone
North Block has again dashed the hopes of SEZ developers looking for service tax exemption. The revenue department is of the view that services that are consumed outside the zone by SEZ developers cannot be exempted from tax.
NEW DELHI: North Block has again dashed the hopes of SEZ developers looking for service tax exemption. The revenue department is of the view that services that are consumed outside the zone by SEZ developers cannot be exempted from tax.
Developers do not have to pay service tax on services provided within the zone. The commerce ministry had raised the issue of extending exemption to services that are consumed by the developers outside the SEZs. There are services like port handling, inland transportation, courier and banking that are consumed outside the zones.
The revenue department –– which is discussion with the commerce ministry –– has made its views on the issue clear to the latter. The department also has concerns over the mechanism through which these services can be exempted. Since these services are consumed outside of the zone, they cannot be verified by indirect tax authorities in the zone. Similarly, these cannot be verified by tax authorities outside of the zone.
Sources said these kind of services will have be identified, and a separate end use-based exemption provided for it. They said since this would call for a new set of exemptions, it will be examined independently.
Commerce ministry, on the other hand, feels that the SEZ Act already provided for tax exemption for services consumed either inside or outside an SEZ so long it was for an authorised operation within a zone.
They said field formations were only interpreting the Act wrongly, but this view has been refuted by the revenue department. The SEZ Act states that exemption from service tax would be provided on taxable services provided to a developer or unit to carry on the authorised operations in a SEZ. A final resolution to the issue may take a while as both ministries continue to slug it out on the interpretation of a provision the law.
Developers do not have to pay service tax on services provided within the zone. The commerce ministry had raised the issue of extending exemption to services that are consumed by the developers outside the SEZs. There are services like port handling, inland transportation, courier and banking that are consumed outside the zones.
The revenue department –– which is discussion with the commerce ministry –– has made its views on the issue clear to the latter. The department also has concerns over the mechanism through which these services can be exempted. Since these services are consumed outside of the zone, they cannot be verified by indirect tax authorities in the zone. Similarly, these cannot be verified by tax authorities outside of the zone.
Sources said these kind of services will have be identified, and a separate end use-based exemption provided for it. They said since this would call for a new set of exemptions, it will be examined independently.
Commerce ministry, on the other hand, feels that the SEZ Act already provided for tax exemption for services consumed either inside or outside an SEZ so long it was for an authorised operation within a zone.
They said field formations were only interpreting the Act wrongly, but this view has been refuted by the revenue department. The SEZ Act states that exemption from service tax would be provided on taxable services provided to a developer or unit to carry on the authorised operations in a SEZ. A final resolution to the issue may take a while as both ministries continue to slug it out on the interpretation of a provision the law.
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