Import of service utilized in sez. whether taxable?

This query is : Resolved

Elroy Joseph Lewis (Querist)
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31 December 2012 Hi All,
First of All Hearty Greeting for the coming New Year 2013.

We are into heavy lifting and erection. One of our project was in a recognized SEZ. For this project we have imported services from foreign entities. the services are wholly consumed and utilsed for the SEZ project.

Now the question is, whether we are liable to pay service tax under reverse charge for these imported services which are wholly utilised for the SEZ project.

The services were imported and utilsed during the period F.Y. 2007-08 and 2008-09

Kindly provide your valuable suggestions

Thanks & Regards
Elroy

Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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31 December 2012 Where the same is disclosed as a service which is authorised and since the same is used in the SEZ, no need to pay.
Under the principles of equity [ arti 265] the same should not be demanded.

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Elroy Joseph Lewis

Elroy Joseph Lewis (Querist)
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16 January 2013 Dear Sir,

Thank You very Much for the reply.

I too have the same opinion. Still the Service Tax Department is of the view that even though the service is provided for SEZ unit & Utilised for the construction of Plant in SEZ, the billing is done to us. Therefore we are liable to pay service tax. They are stating that the service is provided through you and not directly to the SEZ unit.

Kindly state your opinion on this sir.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 In the context of Service Tax and Special Economic Zones (SEZs) in India, the treatment of imported services used in SEZs involves understanding the rules and exemptions that apply to such zones. Here’s a detailed analysis to help you address your query:

### **1. Service Tax on Imported Services**

#### **A. General Rule for Imported Services (Pre-GST Regime)**

1. **Reverse Charge Mechanism:**
- Under the Service Tax regime before GST (i.e., FY 2007-08 and 2008-09), imported services were subject to Service Tax under the reverse charge mechanism. This meant that the recipient of the service in India had to pay Service Tax on such services.

2. **Liability:**
- Even if the services were consumed or utilized in an SEZ, if the billing was done to your company (rather than directly to the SEZ unit), your company would typically be liable to pay the Service Tax.

#### **B. SEZ-Specific Rules (Pre-GST Regime)**

1. **SEZ Exemption:**
- Under the Service Tax regime, SEZ units and developers were eligible for various exemptions and benefits. Specifically, Rule 30 of the Service Tax Rules provided an exemption for services provided to or used by an SEZ unit or developer.

2. **Application of Exemption:**
- If the services were provided directly to the SEZ unit and consumed exclusively in the SEZ, the SEZ unit could potentially claim an exemption. However, since the services were billed to your company and then used for an SEZ project, the Service Tax Department’s view that you are liable to pay Service Tax might be considered valid unless a direct exemption was applicable.

### **2. Implications for Your Situation**

1. **Billing to Your Company:**
- The key issue is the billing. Since the services were billed to your company, and the Service Tax Department is viewing this as a service provided through you and not directly to the SEZ unit, your company is responsible for Service Tax.

2. **SEZ Consumption:**
- While the SEZ unit itself might benefit from exemptions, the Service Tax Department’s interpretation that the billing to your company makes you liable for Service Tax could be correct.

### **3. Documentation and Compliance**

1. **Review Agreements and Bills:**
- Examine the service agreements, invoices, and proof of utilization to ensure all relevant details are well-documented.

2. **SEZ Unit Claims:**
- If the SEZ unit has a separate agreement or documentation proving direct service provision, it should ideally be used to claim the exemption.

3. **Consultation:**
- Since this involves specific interpretations and historical regulations, consulting a tax professional or legal advisor who specializes in SEZ and Service Tax matters would be beneficial.

### **4. Future Considerations Under GST**

1. **Post-GST Changes:**
- Under GST, the treatment of services provided to SEZ units and developers is different, with specific rules governing such transactions. However, for the period you are referring to (pre-GST), Service Tax rules apply.

### **Summary**

For the financial years 2007-08 and 2008-09, if services were billed to your company and utilized for an SEZ project, your company is generally liable to pay Service Tax under the reverse charge mechanism, unless specific exemptions were applied or documented.

**Action Steps:**

- **Verify Compliance:** Check if Service Tax was paid and if any exemptions were applicable.
- **Seek Professional Advice:** Consult with a tax advisor to address any specific concerns and ensure compliance.

This analysis should provide clarity on the Service Tax liability concerning imported services utilized in an SEZ. For precise advice tailored to your case, consulting with a tax expert is recommended.