Collect Service Tax from SEZ - CBEC exhorts the field
There were news reports that Commerce Minister Kamal Nath had laid the blame squarely on Finance minister Chidambaram for the road blocks against India's export journey – we deliberately refrained from covering such rumours. But the latest missive from the CBEC would make it appear that the Finance Ministry is not exactly in favour of the SEZs getting too many benefits. It looks as if they are more with Mamta behn than with Tata bhai.
The latest Service Tax Circular from CBEC tersely admits that “ there has been lack of clarity in the field formations administering service tax as regards the applicability of service tax levy on units located in Special Economic Zones. This lack of clarity has resulted in certain problems especially with respect to service tax administration.”
Who is responsible for this lack of clarity? In government, you can't really fix responsibility; but who is going to be punished? On this, there is no dispute – IT IS ALWAYS THE ASSESSEE.
Board has clarified that SEZ units providing service in the DTA are liable to pay Service Tax and has to be under the jurisdiction of the local Central Excise Authorities. They have instructed the jurisdictional Central Excise Officers to conduct a survey immediately and to discipline all the truant SEZ units. All the talk of the SEZ units being deemed to be outside India has gone for a toss.
Who will pay the Tax? Now, if clearance of steel from DTA to SEZ is treated as exports and export duty has to be paid, isn't receipt of SERVICE from SEZ , import of service and thus tax is to be paid by the DTA recipient and not the SEZ unit?
And as per Rule 48(1) of the SEZ Rules , the “Domestic Tariff Area buyer shall file Bill of Entry for home consumption giving therein complete description of the goods and/or services namely, make and model number and serial number and specification along with invoice and packing list with the Authorised Officers”. So before any service, a Bill of Entry has to be filed by the DTA buyer – Doesn't it mean that he has to pay the tax?
What is the value? As per Rule 48(2) of the SEZ Rules, “Valuation of the goods and/or services cleared into Domestic Tariff Area shall be determined in accordance with provisions of Customs Act and rules made there-under as applicable to goods when imported into India” So valuation for Service Tax has to be under the Customs Act.
What if
1. The Service is partly in SEZ and partly in DTA?
2. The service is wholly performed in SEZ but the recipient is in DTA?
3. The service is wholly performed in DTA but the recipient is in the SEZ?
The Indian Businessman is an incorrigible optimist – with this kind of confusion and admitted lack of clarity, it's a miracle that somebody wants to invest his money in an SEZ. Well if the TATAs can make a mistake by going to West Bengal with their NANO , anyone can do so.
It's time the Commerce Ministry and Finance Ministry patch up their egoistic differences and ensure some clarity so that some business can be done from the SEZs.
Incidentally the Board has also clarified that SEZ units wanting refund on service tax exports should approach the local Central Excise or Service Tax officers.
Also see TIOL-DDT 936 - Services provided in DTA by SEZ units - who has to pay service tax?
CBEC Service Tax Circular No. 105/08/2008 Dated: September 16, 2008