SEZ Act Prevails: CESTAT Chennai Upholds Service Tax Exemption for Rent-a-Cab Services to SEZ Units

Customs, Excise, and Service Tax Appellate Tribunal affirms overriding effect of SEZ Act over the Finance Act, granting tax relief to PRR Travels.

In a significant judgment, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Chennai has ruled in favor of M/s. PRR Travels, granting them exemption from service tax for rent-a-cab services provided to Special Economic Zone (SEZ) units. The tribunal's decision, delivered by Members Shri M. Ajit Kumar (Technical) and Shri Ajayan T.V. (Judicial), underlines the overriding effect of the Special Economic Zones Act, 2005, over any inconsistent provisions in other laws, including the Finance Act, 1994.

The case arose when the appellant, M/s. PRR Travels, was accused of wrongly availing service tax exemption under Notification No. 04/2004-ST for services rendered between July 2009 and March 2010. The Commissioner of Service Tax (Appeals - I), Chennai, had earlier confirmed the demand for service tax amounting to Rs.46,14,467 along with interest and penalties, prompting the appeal to CESTAT.

The tribunal noted that the SEZ Act, designed to promote exports and attract investment, provides comprehensive fiscal benefits, including service tax exemptions for authorized operations within SEZs. Section 51 of the SEZ Act explicitly gives it precedence over any conflicting provisions in other laws. Section 26(1)(e) further entitles developers and units in SEZs to exemption from service tax on services rendered for authorized operations, irrespective of the service location.

M/s. PRR Travels, represented by Advocate Smt. S. Sridevi, argued that their services were entirely consumed within the SEZ and qualified for exemption under the SEZ Act. The tribunal agreed, emphasizing that the SEZ Act’s provisions hold sway over the Finance Act, nullifying the need for notifications under the latter to validate exemptions for SEZ services.

The judgment also dismissed contentions regarding procedural non-compliance, affirming that such breaches do not override the substantive exemption rights granted by the SEZ Act. The tribunal's decision effectively sets aside the previous order, affirming PRR Travels' eligibility for tax exemption and directing consequential relief.

This ruling reinforces the legal position that SEZ Act provisions are paramount in disputes over tax liabilities related to SEZ operations, potentially impacting similar cases and clarifying the tax obligations of businesses operating within SEZs.

Bottom Line:

Service tax exemption under SEZ Act prevails over inconsistent provisions of Finance Act due to overriding effect under Section 51 of SEZ Act. Rent-a-cab services provided to SEZ units for authorized operations qualify for exemption from service tax under Section 26 of SEZ Act, irrespective of situs of service rendering.

Statutory provision(s): Special Economic Zones Act, 2005 Sections 26(1)(e) and 51, Finance Act, 1994, Notification No. 04/2004-ST, Notification No. 9/2009-ST, Notification No. 15/2009-ST.

M/s. PRR Travels v. Commissioner of GST & Central Excise, (CESTAT)(Chennai) : Law Finder Doc Id # 2819323