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Is service tax applicable to a unit located in an SEZ?
July, 25th 2008

We are a company engaged in setting up of local area networks (LAN) for offices. We have been awarded a contract to set up the LAN facility for an enterprise based in a Special Economic Zone (SEZ). We are also required to extend the LAN facility to an office premise maintained by the client in Delhi. We have been informed that service tax would not be chargeable from the client as it is located in a SEZ. Is this stand correct?

As per the SEZ and service tax laws, taxable services provided to a unit located in a SEZ would be exempt from service tax only if the services are consumed within the SEZ. In case the services are provided to a unit located in a SEZ but are not actually consumed within the SEZ, service tax may be leviable. In your case, while services provided to the SEZ unit may be considered to be provided and consumed within the SEZ, services provided in relation to the premises in Delhi may be considered to have be consumed outside the SEZ. Accordingly, service tax may be leviable on the value of services attributable to the setting up of the LAN facility in the Delhi premises. You may bifurcate the total consideration, and charge service tax only on the amount chargeable in respect of services provided for the premises in Delhi.

We are a company engaged in sale of sanitaryware with branches throughout India. We maintain a stock of goods at our warehouse in Mumbai. Our branches place a requisition on the warehouse for supply of goods based on the orders we receive. Based on such specific requisition, goods are dispatched from the warehouse to the branches outside Maharashtra. Are we liable to pay sales tax in Maharashtra in respect of such transfers?

Under the central sales tax (CST) legislation, CST is levied on the sale of goods that occasions the movement of goods from one state to another. In the current case, transfer of goods from the warehouse to branch offices located in other states is made pursuant to the pre-existing order placed by the customers. Therefore, the sale of goods to the customers occasions the inter-state movement of goods. Accordingly, CST would be levied in Maharashtra with respect to such sales.

We have recently incorporated our 100% subsidiary company. We are providing various services to our subsidiary, which are liable to service tax...

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