SEZs likely to get service tax waiver on all activities
August, 18th 2006
The commerce & industry ministry is considering issuing a circular exempting special economic zone (SEZ) units and developers from service tax on all activities related to authorised operations in SEZs. Right now, exemption is granted only for services rendered within SEZs.
The finance ministry, however, is expected to strongly oppose the move. While it is not totally averse to providing the exemption to developers, the ministry has expressed its unwillingness to extend it to SEZ units. It is apprehensive that the provision could be misused by units leading to a financial drain on the government.
Official sources pointed out that a ministry of finance notification issued prior to the enactment of the SEZ Act had extended service tax exemption only for services which were provided within the physical area of an SEZ. However, the SEZ Act states that service tax exemption should be provided for all activities related to operation in the SEZ.
We are aware of the existing anomaly and we are going to take action to redress it soon, an official said. The export promotion council for EOUs and SEZs has taken up the issue strongly with the government.
The SEZ Act clearly states that so long as a service is related to an authorised operation in an SEZ, exemption from service tax should be provided irrespective of where it is rendered. There are no two ways of interpreting it, said LB Singhal, director general, EPCES.
Mr Singhal pointed out that a number of services required by SEZ units and developers were carried out outside the SEZs. For instance, when units import certain inputs, they need to employ services for moving the cargo. Such services should be exempt from tax as the imported material would be used as inputs for production by SEZ units, he said.
Following the enactment of the SEZ Act and Rules earlier this year, there has been a lot of dispute between the commerce and finance ministries on their interpretation and implementation.
Recently, the commerce ministry came out with an official instruction stating that the harassment being faced by SEZ units in availing of excise exemption for sale in domestic tariff area as mentioned in the SEZ Act should be stopped.
It informed all customs and excise commissioners that all activities relating to SEZs shall be guided by the provisions contained in the SEZ Act, 05, and the SEZ Rules, 06.