Services provided to SEZ unit/Developer - New refund procedure
THE Central Government has superseded Notification and issued a new notification granting exemption to taxable services received by a unit located in a Special Economic Zone or Developer of SEZ and used for the authorised operation from the whole of the service tax and the Cesses leviable thereon.
The exemption is provided by way of refund of service tax paid on the specified services received by the SEZ Unit or the Developer and used for the authorised operations. In case the specified services received by the SEZ Unit or the Developer are used exclusively for the authorised operations, the person liable to pay service tax has the option not to pay the service tax ab initio.
The list of the services as are required for the authorised operations (also called as specified services) should be got approved by the SEZ unit/Developer from the Approval Committee.
The ab-initio exemption on the specified services received and used exclusively for the authorised operation shall be allowed subject to certain procedure and conditions.
Under the previous Notification (40/2012), the ab-initio exemption was admissible only to the specified services which are ‘wholly consumed within the SEZ'. To decide whether a particular service was wholly consumed within the SEZ or not, the provisions of Place of Provision of services Rules, 2012 needed to be applied. Now to simplify the procedure, the abinitio exemption if allowed is specified services are ‘ used exclusively for the authorised operations', whether wholly consumed within the SEZ or not.
In case the specified services on which exemption has been claimed are not exclusively used for authorised operation or were found not to have been used exclusively for authorised operation, the SEZ unit/Developer shall pay to the government an amount that is claimed by way of exemption from service tax and cesses along with interest as applicable on delayed payment of service tax under the provisions of the said Act read with the rules made thereunder. And what is the mechanism for recovery of this ‘amount'?
In case the SEZ unit/Developer does not use the specified services exclusively for authorized operation but for other operations, they are entitled to a refund of the service tax paid in the manner spelt out in the notification. Also the SEZ unit/Developer who chooses not to opt for the ab initio exemption though entitled for the same can also claim refund of the service tax paid in a similar manner.
The notification also mentions that in case the specified services are common to the authorised operation in an SEZ and the operation in domestic tariff area [DTA unit(s)] the service tax paid shall be distributed amongst the SEZ Unit or the Developer and the DTA unit (s) in the manner as prescribed in rule 7 of the CENVAT Credit Rules, 2004.
It is further laid down that the SEZ unit/developer who is registered as an assessee under the CEA/CER shall file the claim for refund to the jurisdictional Dy/Asstt. Commissioner of CE and in case they are not registered they need to get registered under rule 4 of the Service Tax Rules, 1994 before filing a claim for refund. The periodicity of refund and the time within which a claim for refund has to be filed is also stipulated - periodicity is one claim for every quarter & the time limit is one year from the end of the month in which actual payment of service tax was made by the SEZ unit/Developer to the registered service provider or such extended period (how much is this?).
The notification further clarifies that the SEZ Unit/Developer also has a choice to take CENVAT credit on the specified services by foregoing the exemption/refund prescribed.
Nonetheless, there are various forms A-1 to A-4 prescribed that the claimant of this notification has to fill in to reap the benefit of exemption.
To the extent that the new notification has let go of the cumbersome calculations, the disputed words “wholly consumed” and the leaning on the Place of Provision of Services Rules, 2012, it appears to be lighter and would, hopefully, be welcomed by the beneficiaries.
But……
There is a new complication. For availing ab initio exemption, the SEZ unit has to get an Authorisation from the Deputy Commissioner of Central Excise and the SEZ unit/developer should provide a copy of the Authorisation to the Service Provider and then only the service provider can provide the service without tax. It is not known whether the service provider is required to hire a few investigating agencies to ascertain the genuineness of the Authorisation by the Deputy Commissioner.
Notification No. dated, 1st July, 2013