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EC blocks service tax sops for SEZ units
April, 27th 2009

Developers of special economic zones (SEZ) and units operating in them will have to wait until a new government is formed to get a keenly-awaited exemption on service tax payments for services availed inside the zones.

The Election Commission (EC) has refused to allow the finance ministry to pass a notification allowing the exemption while elections are on because it could result in direct benefits to a section of the electorate, a government official has said. It will be the new elected government which will bring out the notification, the official said.

Until the elections are over, these units will have to pay the service tax and claim refunds, much to their disappointment as this process is lengthy and locks up cash.

Initially, SEZ units and developers had been allowed exemption on service tax on services availed within the boundaries of the zone, but were made to pay tax on services enjoyed outside the zone.

Following representations from the industry, the finance ministry decided to allow SEZs to claim refunds on services such as banking, courier and port-handling availed outside the zones.

The new notification, however, laid down that SEZ developers and units will get refunds for service taxes on services consumed both outside and inside the zones.

The commerce department, therefore, on behalf of SEZs, had asked the finance ministry to restore the exemption benefit which the zones had been enjoying on service tax availed within the zones.

The finance ministry has agreed to the proposal. However, it has to wait now till the elections are over, the official added.

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