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2016 (7) TMI 1154 - GUJARAT HIGH COURT

2016 (7) TMI 1154 - GUJARAT HIGH COURT - 2016 (44) S.T.R. 369 (Guj.) - Taxability of services provided by the SEZ unit to the DTA unit of the same assessee - principle of mutuality - Held that:- Identical issues raised by the same assessee for assessment year came up for consideration in [2016 (7) TMI 307 - GUJARAT HIGH COURT] The Tax Appeals of the Government were dismissed. - These Tax Appeals are also dismissed. - TAX APPEAL NO. 326 of 2016 TO TAX APPEAL NO. 331 of 2016 - Dated:- 21-7-2016 - .....

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s.Larsen & Toubro Limited, Power Project Management Services and Larsen & Toubro EPC unit is a single legal entity and, therefore, the respondent is not liable to pay service tax ? 2. Identical issues raised by the same assessee for assessment year came up for consideration in Tax Appeal Nos.42 and 43 of 2013. The Tax Appeals of the Government were dismissed. These Tax Appeals also, therefore, would meet with the same fate. For convenience, however, we may reproduce the relevant portion .....

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on 65(105) defines various taxable services. Clause (zzzq) thereof pertains to service provided to any person by any other person in relation to support services of business or commerce in any manner. Section 65(104c) defines support services of business or commerce as under : "Support Services of Business or Commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment .....

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th office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security; 9. In terms of these provisions, therefore, in ordinary circumstances, it is not even the case of the respondent that the services provided by the SEZ unit not in the nature of support services of business or that for any other reason, they are not taxable services. 10. Section 2(za) of the Special Economic Zones Act, 2005 defines Special .....

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a Special Economic Zone or a developer, shall subject to such terms, conditions and limitations as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. Section 30 of the Special Economic Zones Act, 2005 reads as under : Domestic clearance by Units.-Subject to the conditions specified in the rules made by the Central Government in this behalf:- (a) any goods removed from a Special Economic Zone to the Domestic Tariff Area sha .....

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is Act, therefore, any goods removed from a Special Economic Zone to the Domestic Tariff Area would be chargeable to duties of customs including antidumping, countervailing and safeguard duties under the Customs Tariff Act, as leviable on such goods when imported. 12. In exercise of powers conferred under the Special Economic Zones Act, 2005, the Central Government has framed the Special Economic Zones Rules, 2006. Rule 19 thereof pertains to letter of approval to a unit and provides for various .....

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ranch operations in the Special Economic Zones in accordance with the provisions of Foreign Exchange Management (Establishment in India of branch or office or other place of business) Regulations, 2000 as amended from time to time. 13. Rule 22 of the Rules of 2006 pertains to terms and conditions for availing exemptions, drawbacks and concessions to every developer and entrepreneur for authorised operations. Subrules (2) and (3) read as under : (2) Every Unit and Developer shall maintain proper .....

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s or Biotechnology Park Unit, as the case may be, and balance in stock: Provided that unit and developer shall maintain such records for a period of seven years from the end of relevant financial year: Provided further that the unit engaged in both trading and manufacturing activities shall maintain separate records for trading and manufacturing activities. (3) The Unit shall submit Annual Performance Reports in the Form I, to the Development Commissioner and the Development Commissioner shall p .....

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nt, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. This Act makes special provisions for the units situated in Special Economic Zones to be notified and established. Under section 7 of the Special Economic Zones Act,2005, any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by a unit in a Special Economic Zone or a developer, would be subject to such ter .....

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Area, the same would be chargeable to duties of customs including antidumping, countervailing and safeguard duties under the Customs Tariff Act, as applicable, leviable on such goods when imported. In view of such special status and in order to enable a unit to claim such exemption, drawbacks and concession, under subrule(2) of Rule 22 of the Special Economic Zones Rules, 2006, it is provided that every unit and developer has to maintain proper accounts financial yearwise, clearly indicating in .....

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ks of accounts, but it shall not be necessary for the Special Economic Zone unit to be a separate legal entity. 15. All these statutory provisions indicate separate and artificially created independent existence of a SEZ unit of a company whether it has another unit situated in Domestic Tariff Area or not. In particular, Rule 19(7) of the Special Economic Zones Rules, 2006 while recognising that the same legal entity may have two units, one in SEZ and another in DTA, mandates that the two would .....

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in Domestic Tariff Area, the two would have distinct identities with separate books of accounts, but it would not be necessary for the Special Economic Zone unit to be a separate legal entity. 16. For various purposes, thus a SEZ unit of an enterprise which also has an additional unit in Domestic Tariff Area, therefore, has a distinct identity. Its accounts are separate, its accounting would be separate. This artificial creation of separate accounting of a unit or an industry of a common enterpr .....

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based. It may be that while assessing the company, its total income would have to be computed and the income of the assessee from such eligible business after deductions, would also form part of the total income. Nevertheless, for the purpose of accounting, the particular industry eligible for deduction would be treated separate from other units. 17. Under the circumstances, in view of statutory scheme noticed in the Finance Act, 1994 and Special Economic Zones Act, 2005, the contention of the .....

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by group of persons for themselves, as in the case of a club for recreation, any excess or residue, from out of the funds collected, would not become the income of the club chargeable to tax. 18. The question of charging service tax however, needs to be looked from a slightly different angle. Section 66 of the Finance Act, 1994, as noted, provides for levy of taxes at the rate of prescribed percentage of the value of taxable services referred to in various clauses of subsection(105) of Section .....

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service is provided but no value thereof is charged, there would be no question of collecting service tax. No provision has been brought to our notice in the Finance Act, 1994 under which though the service provider has not charged any value for service, service tax thereon still can be levied on its deemed value, be it market value or fair value. It is a different matter altogether if the departmental authority disbelieves that though service was provided but no charge was collected and in such .....

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o section 65 states as under : For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons, to a member thereof, for cash, deferred payment or any other valuable consideration. 20. Thus the term taxable service has a direct relation to the consideration either paid in cash or by way of deferred payment or by mentioning of any other valuable consideration. This would reinforce our belief that when n .....

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