The finance ministry should exempt companies in special economic zones (SEZ) from paying tax on the services they consume instead of making them seek refunds, according to the commerce department. Earlier this month, the finance ministry had notified that instead of being exempt, companies within SEZs would have to claim refunds for the tax they pay on services.

We have written to the revenue department asking it to allow SEZs exemption on service tax within the zone as was being done earlier. For services outside the zone, developers and units could be given reimbursements on the taxes paid, said a commerce department official.

The industry prefers exemptions over reimbursements as the latter takes time, besides locking up funds with the government for a considerable period. A 10% tax is imposed by the government on 100 services.

Initially, the government exempted companies from tax on services consumed within SEZs. SEZs then demanded that exemption should be extended to authorised services consumed outside the zones such as port-handling, in-land transportation, courier and banking.

Following months of discussions between the commerce and revenue departments, a notification was issued allowing refunds on services availed both outside and inside the zones. But the exemption was short-lived. It was laid down that SEZ developers and units will have to claim reimbursements.

We have pointed out to the revenue department that this change is unfair especially at a time when the industry is already starved of funds, the official said. The revenue department has, however, not yet responded to the commerce departments request.