Budget 2012: Vendors should be allowed to not charge tax basis declaration issued by SEZ units, says E&Y

Exemption from MAT for SEZ Developers and Units and exemption from dividend distribution tax (DDT) for SEZ Developers was withdrawn last year. SEZ Developers and Units are now required to pay MAT @ 20% though they continue to enjoy tax holiday under normal provisions.

SEZ Developers are also liable for DDT @ 15% (plus applicable surcharge and cess) on dividends paid, declared or distributed. Withdrawal of tax shelter after taxpayers in SEZ had committed significant resources on the basis of statutory comfort of complete tax holiday was received largely as inappropriate as it adversely affected the stability of tax policy.


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Therefore, status quo prevailing, Ernst & Young feels that the earlier may be restored and the provision may be made applicable to SEZ Developers in respect of SEZs notified on or after 1 June 2012 and new SEZ Units set up on or after 1 June 2012.

Streamlining of Provisions related to SEZs

> The exemption notification 17/2011 lays down cumbersome rules effectively denying the Indirect tax benefits on the inputs/input services supplied to the SEZ units. Simple rules are required as in case of Export of Eervice Rules with minimal procedural requirements and interface with Ministry of commerce and Ministry of Finance.

> Assessees having multiple SEZ units/ developers across different states have to approach jurisdictional SEZ authorities in each state to get each taxable service approved as used in relation to "authorized operations". A standard list of specified services should be prescribed acceptable by all SEZ authorities as well as Service tax authorities.

> Practically, Form A-1 in relation to 'Category III' services are not issued by authorities at all resulting in cash outflow due to payment of Service tax as upfront exemption is not available then. The requirement to obtain Form A-1 should be removed and vendors should be allowed to not charge tax basis declaration issued by SEZ units/ developers.

> Presently, process of claiming refund of Service tax paid by SEZ units/ developers is a cumbersome and prolonged process and very few refunds have been sanctioned in various jurisdictions. Strict instructions may be issued to streamline the process of granting refund in a time bound manner and ensure that it is not delayed/ rejected for frivolous reasons.