9911796707
TMI Blog2011 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... to domestic as well as foreign aviation entities. The applicant proposes to enter into a contract with an overseas entity located in Singapore who will procure contracts for MRO services from domestic and foreign airlines. The overseas entity will sub-contract to the applicant the contract for MRO services which will be carried out in the SEZ. The applicant will be paid in convertible foreign exchange by the overseas entity. The applicant also proposes to enter into direct contracts with domestic and foreign airlines who will pay the applicant in convertible foreign exchange. 2. The applicant proposes to carry out the entirety of the MRO services within the SEZ. According to the applicant the activity of repair gets concluded when the repair is carried out on the aircraft. Therefore, the service is received by the recipients as soon as the repair activity is carried out inside the SEZ. The consumption of the service is also therefore simultaneous. The applicant has requested for a definitive ruling on the following questions:- (1) Whether service tax is applicable on the services rendered by the applicant to the overseas entity for contract with:- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant and received within the SEZ which is deemed to be a territory outside India. 3.2 It has been argued by the applicant that the deeming fiction created by Section 53 (1) of SEZ Act has to be given its full effect and it has to be interpreted in a manner that benefits the SEZ and thus service tax is not applicable to the activities carried out by the applicant inside the SEZ. Moreover, since the entire activity is carried out inside the SEZ itself, it has no territorial nexus with the DTA where the Finance Act is applicable. In the absence of any territorial nexus, the activity of the applicant, it has been claimed, is not exigible to service tax. 3.3 The applicant further contends that even though the provisions of Finance Act, 1994 apply to the entirety of India except Jammu and Kashmir, in view of the deeming fiction created under Section 53(1) of the SEZ Act, the said Finance Act will not apply to services rendered in the SEZ unless there is specific provision in the SEZ Act itself permitting levy of service tax on services rendered in the SEZ. The applicant has referred to the following provisions of the SEZ Act to suggest that SEZ territory is deemed to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of charge created under Section 66A of the Finance Act read with the exemption provided under the Import of Service Rules [that is, the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006]. The applicant submits that since the performance of the service is in a SEZ which is wholly outside India, the service will not be regarded as import of services in India in terms of Rule 3 (ii) of the Import of Service Rules. Consequently no service tax is leviable on MRO services proposed to be rendered by the applicant to foreign and domestic airlines within the territory of SEZ. As per the applicant this position will apply both for contracts undertaken on behalf of overseas entity as well as those undertaken directly for foreign or domestic airlines. 4.2 Similarly the applicant has contended that under the Export of Services Rules, 2005 MRO services rendered by the applicant and classifiable under clause (105) (zzg) of Section 65 are specified under rule 3 (1) (ii) of the Rules. They would qualify as export of services if the services are partly or wholly performed outside India and if the payment for said services is received in convertible foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian and foreign customers. Hence the MRO services to be provided by the applicant within the SEZs are to be treated as services provided within the territory of India and are leviable to service tax under Section 66 of the Finance Act. 5.4 Further, in terms of Section 66A read with Rule 3 (ii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 maintenance or repair services should be performed partly or wholly within India to attract the charges of Service Tax. Since in the case of the applicant the entire MRO services will be rendered within the SEZs in India, these are to be treated as services provided within India and hence the applicant is liable to pay service tax. 5.5 The Commissioner, further contends that in terms of rule 3 (1) (ii) of Export of Service Rules, 2005, MRO services will qualify as export if such services are performed partly or wholly outside India. Since in the case of the applicant the MRO services will be performed within the SEZ i.e. within India, such services do not qualify as export as contemplated under Rule 3(i) (ii) aforesaid. 6.1 During the course of the arguments also the Departmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SEZ Act in an attempt to suggest that the provisions of the SEZ Act will prevail over any other enactment. Sub-section (1) of Section 53 reads as follows: "A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations." Provision Section 51 of the SEZ Act are set out below:- " The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act." 7.3 The applicant has contended that a combined reading of the aforesaid two provisions implies that an SEZ is deemed to be a territory outside India and in view of the supremacy of the SEZ Act under Section 51, the Finance Act, 1994 shall have no application to operations undertaken in an SEZ. Consequently there is no basis for levy of service tax on services provided in a deemed foreign territory. The applicant has also relied upon Section 27 of the SEZ Act regarding applicability of Income Tax laws as also certain definitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods or services on which exemptions, drawbacks, cess and concessions have been availed for the authorized operations or unable to duly account for the same, the entrepreneur or the Developer, as the case may be, shall refund an amount equal to the benefit of exemptions, drawback, cess and concessions availed without prejudice to any other action under the relevant provisions of the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Excise Tariff Act, 1985, the Central Sales Tax Act, 1956, the Foreign Trade (Development and Regulation) Act, 1992 and the Finance Act, 1994(in respect of service tax) and the enactments specified in the First Schedule to the Act, as the case may be" 7.6 Accordingly where the exempted goods/services entered into a SEZ are not utilized for authorized operations or are not duly accounted for, penal action can be taken against the entrepreneur or developer inter alia under the Customs Act, 1962 and other Customs Laws. In other words, Customs laws have been made applicable to SEZs in the SEZ scheme itself under specific situations. This provision complements the provisions of sub-section (1) of Section 53 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Section 53(1) of the SEZ Act does not make the Finance Act, 1994 inapplicable to a SEZ. In the absence of any inconsistency there is no need to invoke section 51 of the SEZ Act. 7.9 Section 66 A of the Finance Act, 1994 provides for levy of service tax under certain specified situations on services received from outside India. The applicant has claimed that since the MRO services are provided in a SEZ which according to him is outside India no such tax is leviable under the said provision. However, as discussed in the preceding paragraphs SEZs are deemed to be outside the customs territory of India only for undertaking authorized operations; all other enactments are applicable to the operations carried out in the SEZs. The MRO services would therefore be performed within the territory of India and Section 66 A will have no application in the context of these activities. The services provided by the applicant would be taxable under Section 66 of the said Finance Act, 1994. 7.10 The aforesaid MRO services provided by the applicant cannot also be considered as export of taxable services under the Export of Services Rules, 2005 since in terms of clause (ii) of Rule 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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