GMR challanges AAR ruling imposing service tax on MRO activities rendered within the SEZ in HC

The MAS-GMR Aerospace Engineering has approached the Andhra Pradesh High Court against the Authority for Advance Ruling’s (AAR) order that held that maintenance, repair and overhauling (MRO) activities in the aerospace SEZ attracts service tax. MAS-GMR Aerospace Engineering is a joint venture between GMR Hyderabad International Airport and Malaysian SDN-BHD.

“Service tax will be chargeable on services rendered within the SEZ unless specifically exempted under the SEZ Act or under the Finance Act, 1994 or any Rules or Notifications there under. There is no such exemption presently available in respect of MRO services proposed to be provided by the applicant,” AAR had said in its order in May.

GMR has now requested the high court to declare the order as arbitrary and illegal and set aside the same. The court has posted matter for the hearing on August 10.

The Excise Commissioner in Hyderabad had asked the MAS-GMR Aerospace Engineering to pay service tax for MRO activities in the aerospace SEZ located near the international airport here, but the company contended that it need not pay the tax as it is located in the SEZ which is exempted from paying taxes.

The company is yet to start MRO operations in the SEZ.

According to the Excise Commissioner, exemption from duties and taxes on goods and services is only for the purposes of export.

The Commissioner further said the MRO services falling under the category of Section 65 (105) (zzg) of the Finance Act, 1994 to be provided by the applicant within the SEZ are not for the authorised operations of SEZ and will be provided to various Indian and foreign customers.

MAS-GMR approached the Central Board of Excise and Customs (CBEC) in New Delhi seeking clarification on exemption from service tax for MRO services.

CBEC upheld the opinion of the Excise Commissioner and asked the MAS-GMR to pay service tax on MRO activities.

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