Special Economic Zones (SEZ)

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 June 2011 If suppose we are a unit in SEZ and we are taking some services from the outside and vendor is also charging service tax on these services amount then what will be the procedure for the same we have to pay first the service tax then claim the refund or we can refuse to pay the service tax to vendor.

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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20 June 2011 for more info:-

https://www.caclubindia.com/articles/nothing-special-about-service-tax-exemption-in-sez-7201.asp

http://www.eximguru.com/exim/special_economic_zone_sez/ch_9_sez_incentives.aspx

Querist : Anonymous

Querist : Anonymous (Querist)

20 June 2011 Please let me know in nutshell. Have to pay first then refund or no need to pay?

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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20 June 2011 for nutshell information link is above said.

Querist : Anonymous

Querist : Anonymous (Querist)

20 June 2011 Dear

Please try to understand. Want to clarify First we have to pay or not

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 Here’s the nutshell answer regarding **service tax on services taken by a unit in SEZ from outside**:

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### Key points:

1. **SEZ units are considered 'exporters of services'** as their output (goods or services) is for export.
2. Under the **service tax law (before GST)**, services provided to SEZ units are **exempt** from service tax **if** the service provider is located outside the SEZ and the service is used in the SEZ unit for authorized operations.
3. **If the vendor is charging service tax on such services**, ideally **they should not charge service tax**, as these services qualify for exemption.
4. However, if the vendor charges service tax mistakenly or refuses to waive it:

* You **pay the service tax to the vendor**.
* Then, **you can claim a refund of the service tax paid** from the government (through the refund process).
5. Alternatively, you can **request the vendor not to charge service tax** by showing exemption status under SEZ rules.
6. You cannot simply refuse to pay the vendor unless you have a written agreement or clear exemption proof accepted by the vendor.

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### What you should do practically:

* **Inform the vendor** about SEZ exemption status with supporting documentation.
* If vendor still charges tax, **pay and then claim refund** from service tax authorities.
* Keep all documents for refund and audit purposes.

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### Summary:

| Situation | Action |
| --------------------------------------- | ------------------------------------ |
| Vendor knows SEZ exemption & cooperates | Vendor does not charge service tax |
| Vendor charges service tax | Pay service tax → claim refund later |
| Vendor refuses payment without tax | Risk of dispute; better negotiate |

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If you want, I can share the relevant exemption notification references or sample communication letters to vendors. Would that help?

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