Service Tax Cannot Be Levied On Rent-A-Cab Services Provided To SEZ Units: CESTAT Chennai

Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) observed that the SEZ Act is a self-contained Act which provides exemptions on taxes, duties, cess, drawbacks and concessions on imports and exports of goods and on supply of services to the Developers and Units within a SEZ for carrying on authorised operations. Therefore, in terms of sections 51 and 26 of the SEZ Act, no notification is required to be issued under Section 93 of the Finance Act, 1994, in this regard.

In this case, the assessee/appellant was providing taxable service under the category of 'Tour Operator Service' to units in the Special Economic Zone (SEZ).

A Show Cause Notice was issued alleging that they had wrongly availed the exemption under Notification No. 04/2004-ST dated 31.03.2004 for the period July 2009 to March 2010 and had not paid Service Tax on rent-a-cab services to SEZ units correctly.

The department was of the view that the said exemption was applicable only when services are provided within SEZ, whereas in the assessee case, the service, viz renting of a cab to SEZ units, cannot be termed as services consumed within SEZ units.

Hence, a show-cause notice was issued to the assessee. After due process of law, the Adjudicating Authority confirmed the demand of Service Tax of Rs. 46,14,467/- along with interest and appropriated an amount of Rs. 37,98,400/- towards the above demand of service and imposed a penalty under section 76 of the Finance Act, 1994.

The counsel for the assessee submitted that the assessee provided rent-a-cab services to a SEZ unit for employee transportation, without collecting service tax, believing these services were exempt under Notification No. 4/2004-ST dated 31.03.2004. She submitted that the services were entirely consumed within the SEZ, for its employees and thus received by the SEZ unit.

The department argued that the charge against the appellant was that the service provided by them had not been consumed within the SEZ, which was a necessary condition for availing the exemption extended by notification no. 4/2004-ST dated 31st March 2004. In other words, the service should have been conclusively established by the assessee to have been exclusively used in the SEZ. Since they have failed to do so, the appeal may be rejected.

The bench stated that as for the services provided to the Developer or Unit partially outside the SEZ, Section 26(1) (e) of the SEZ Act states that every Developer or Unit shall be entitled to exemption from Service Tax on taxable services provided to carry on the authorised operations in a SEZ.

Hence, the situs of rendering services is not relevant in connection with carrying on the authorised operations, so long as the taxable services are provided to a Developer or Unit in a SEZ. Therefore, the said taxable services would be exempt from the whole of the service tax leviable thereon under section 66 of the said Finance Act as per the provisions of the SEZ Act and Rules framed thereunder, added the Tribunal.

The bench held that the assessee is eligible for exemption from service tax for rent-a-car services provided to SEZ units as per the overriding effect under Section 51 of the SEZ Act on any other law for anything inconsistent therewith and the exemption provided by Section 26 of the SEZ Act.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. PRR Travels v. Commissioner of GST & Central Excise

Case Number: Service Tax Appeal No. 42331 of 2016

Counsel for Appellant/ Assessee: S. Sridevi

Counsel for Respondent/ Department: G. Kripa

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