Services provided in DTA by the SEZ Units - who has to pay service tax?
WHAT would you do when there is an audit objection by the C&AG? You make best efforts to prove that the matter does not belong to you and pass the buck. Vide para 6.7.8 of the C&AG report on Indirect taxes for the year 2008, it was pointed out that:
6.7.8 Non-levy of service tax on services rendered in the DTA
In terms of the paragraph 7.8 of the Exim Policy (2002-07), an SEZ unit can render services in DTA on payment of the applicable duty. As per the Finance Act, 1994, amended from time to time, service tax is levied on the value of taxable services rendered. Audit scrutiny of the records of six units in Madras and Cochin SEZs revealed that service tax of Rs. 72.47 lakh was not paid on services valuing Rs. 7.22 crore rendered (during 2003-04 to 2005-06) in the DTA. The concerned services related to manpower services, technical testing and analysis services etc., which were taxable.
Now the Director General of Export Promotion vide his letter dated 14.7.2008 to the Director General, Service Tax has communicated that:
"Department of Commerce, while commenting on the observations of CAG on the Audit Para, vide OM F No. D-9/7/2007-SEZ dated 19 th June 2008 (copy enclosed), has observed that ‘monitoring and collection of Service Tax does not come under the jurisdiction of Development Commissioner. Service Tax is levied and collected by the concerned Central Excise Unit”.
Accepting that the monitoring and collection of Service Tax does not come under the Department of Commerce, will payment of customs duty on supply of steel products come under Department of Commerce? Then why did the DoC earlier issue clarifications on payment of export duty on steel, not once, but twice (Please see ). It appears that the above clarification has been circulated to the field with a direction to issue SCNs demanding service tax.
And if the supply of steel products to SEZ are exports and attract export duty, then by the same analogy the supply of services in DTA would amount to import of services from outside India and the liability to pay service tax in such cases is on the recipient of the Service, but not on the SEZ Unit. Para 7.8 of the Exim Policy says that SEZ Unit can render services in DTA on payment of applicable duty. It does not stipulate that the duty has to be paid by the SEZ Unit only.
Anyway, while it may be doubtful whether the SEZs would create wealth and provide an impetus to the economy, there is at least certainty with regard to the growth of revenues for the consultancy sector.
Letter F.No DGEP/C&AG/SEZ/217/2007/1155 Dated 14.07.2008 by DGEP