Services provided to developer or units of Special Economic Zone
What is Special Economic Zone?
A Special Economic zone (SEZ) is a geographical region that is designed to export goods and provide employment. SEZs are exempt from federal laws regarding taxes, quotas, FDI-bans, labour laws and other restrictive laws in order to make the goods manufactured in the SEZ at a globally competitive price.
The category SEZ includes free trade zone (FTZ), export processing Zones (EPZ), free Zones (FZ), industrial parks or industrial estates (IE), free ports, free economic zones, and urban enterprise zones.
Provision related to services provided to SEZ
The Central Government, on being satisfied that it is necessary in the public interest so to do, a Provisions of exemption in relation to services provided to SEZ have been made in Notification No. 40/2012-dated 20-6-2012 and exempts the services on which service tax is leviable under section 66B of the said Act, received by a unit located in a Special Economic Zone or Developer of SEZ and used for the authorized operations, from the whole of the service tax, education cess and secondary and higher education cess leviable thereon.
It may be noted that SEZ is treated as ‘in taxable territory’ for purpose of service tax, though for purpose of export and import of goods, it is treated practically as out of India.
There is no exemption if unit in SEZ provides service to person outside SEZ. Service tax will be payable by SEZ unit itself and reverse charge will not apply.
The exemption shall be provided by way of refund of service tax paid on the specified services received by a unit located in a SEZ or the developer of SEZ and used for the authorized operations:
And if specified services received in SEZ and used for the authorized operations are wholly consumed within the SEZ, the person liable to pay service tax has the option not to pay the service tax ab initio instead of the SEZ unit or the developer claiming exemption by way of refund in terms of this notification.
The term “wholly consumed “under this notification means
In respect of services based on performance – the place where the services are actually performed is within the SEZ
In respect of services based on immovable property – the place where the property is located or intended to be located is within the SEZ
In respect of other services except above two – the recipient does not own or carry on any business other than the operations in SEZ
where the specified services received by the unit of a SEZ or developer are not wholly consumed within SEZ, maximum refund shall be restricted to the extent of the ratio of export turnover of goods and services multiplied by the service tax paid on services other than wholly consumed services to the total turnover for the given period to which the claim relates, i.e.,
refund amount =
(Export turnover of goods + service tax paid * Other than wholly consumed services
paid on services of SEZ Unit/Developer) (both for SEZ and DTA)
Total turnover for the period
“Refund amount” means the maximum refund that is admissible for the period,
“Export turnover of goods” means the value of final products and intermediate products cleared during the relevant period and exported;
“Export turnover of services” means the value of the export service calculated in the following manner, namely:-
Export turnover of services = payments received during the relevant period for export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period – advances received for export services for which the provision of service has not been completed during the relevant period;
“Total turnover” means sum total of the value of-
- All excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
- Export turnover of services determined in terms of clause (C) and the value of all other services, during the relevant period.