It’s a move that is bound to raise the hackles of the special economic zones (SEZ) lobby. On Tuesday, the Finance Ministry came out with a new notification on the levy of service tax for SEZ developers and units.

As per the new norms, SEZ developers and units will get an exemption on service tax. However, they will have to first pay the service tax, and then file for refunds.

The norms also state that the claims can be filed within 6 months of actual payment of service tax.

Tax experts say the move is fraught with complications, and could increase the procurement cost for developers and units. It also means the money will take a while to come back to the SEZ’s kitty.

In addition, SEZ Commissioners will decide on which operations are entitled for service tax exemption.

Experts say this move will give the commissioners significant discretionary power.

But the controversy does not end here. The new notification effectively makes a change to a taxation rule for SEZs which are covered under a separate act. Experts say this could well become another bone of contention.

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SEZ units demand procedural changes for refund of service tax

Welcoming the government&aposs decision to broaden the ambit of services exempted from tax for SEZs, Export Promotion Council for EOUs and SEZs today said the Finance Ministry should also streamline the procedure to encourage exports.

The Export Promotion Council for EOUs and SEZs (EPCES) Director General L B Singhal here said as per the Finance Ministry notification service tax has to be paid first and then refund has to be claimed.

“It will result into unnecessary blockage of funds, paper work and transaction cost. Hence it would be appropriate if ab-initio exemption could be provided,” Singhal said.

At present services under the ambit of SEZs are already exempted from service tax.” This needs to be clarified that on services rendered within SEZ, no service tax is to be paid,”he said.

A specific time frame of maximum of seven days should be provided for the refund of service tax, he said adding that the tax refund should be provided either from the office of the Development Commissioner in the zone or from Customs officer posted in the zone.

“SEZ units or developers must not be asked to go outside the SEZ for taking this refund, Singhal added.

The government, so far, has given formal nod to 513 SEZs, of which 250 have been notified and 87 zones are operational.

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