Central Board of Excise and Customs, Ministry of Finance has rescinded Notification No. 40/2012-ST dated 20th June 2012 and introduced new Notification No. 12/2013-ST dated 01-07-2013.

1. As per this Notification where the specified services received by the SEZ unit or the Developer are used exclusively for the authorised operations, the person liable to pay service tax has the option not to pay the service tax ab-initio, subject to the following conditions and procedure as stated below:

a)    The SEZ Unit or the Developer shall get an approval by The Approval Committee of the list of the services as are required for the authorised operations (referred to as the specified services) on which the SEZ Unit or Developer wish to claim exemption from service tax.

b)    The SEZ Unit or the Developer shall furnish a declaration in Form A-1, verified by the Specified Officer of the SEZ, along with the list of specified services in terms of abovementioned condition a);

c)    On the basis of declaration made in Form A-1, an authorization shall be issued by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be to the SEZ unit or the Developer in Form A-2;

My Comments : Above condition ‘c)’ is a new condition. Previously as per Notification No. 40/2012-ST dated 20th June 2012 in addition to condition and procedure mentioned in ‘a)’ and ‘b)’ above, self declaration from the unit of a SEZ or developer claiming the exemption that the specified services on which exemption and or refund is claimed, have been used for the authorised operations were sufficient.

Hence it will be time consuming to get authorization in Form A-2 as required above to claim ab-initio exemption. This procedure has to be repeated in all the cases in future where in any new service providers will be added.

However one good point in Form A-2 is that Amount of Services to be consumed along with prospective amount of service tax to be saved, service provider wise, is not required to be mentioned.

d)    The SEZ Unit or the Developer shall provide a copy of said authorization to the provider of specified services. On the basis of the said authorization, the service provider shall provide the specified services to the SEZ unit or the Developer without payment of service tax;

My Comments :  Notification No. 12/2013- ST is silent about delay in issuing authorization by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise i.e. during the interim period of Filing Form A-1 after verified by the Specified Officer of the SEZ and before an authorization required to be issued by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be to the SEZ unit or the Developer in Form A-2, whether the service provider can provide the specified services to the SEZ unit or the Developer without payment of service tax or not.

e)    The SEZ Unit or the Developer shall furnish to the jurisdictional Superintendent of Central Excise a quarterly statement, in Form A-3, furnishing the details of specified services received by it without payment of service tax;

My Comments : Above condition ‘e)’ is also a new condition. Hence administrative work of the SEZ Unit or the Developer will increase.

f)     The SEZ Unit or the Developer shall furnish an undertaking, in Form A-1, that in case the specified services on which exemption has been claimed are not exclusively used for authorized operation or were found not to have been used exclusively for authorized operation, it shall pay to the government an amount that is claimed by way of exemption from service tax along with interest as applicable on delayed payment of service tax under the provisions of the said Act read with the rules made thereunder.

2. The refund of service tax on i) the specified services that are not exclusively used for authorized operation, or ii) the specified services on which ab-initio exemption is admissible but not claimed, shall be allowed subject to the following procedures and conditions:

a)    The SEZ Unit or the Developer who is registered as an assessee under the Central Excise Act, 1944 (1of 1944) or the rules made thereunder, or the said Service Tax Act, 1994 or the rules made thereunder, shall file the claim for refund to the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, in Form A-4.

b)    The amount indicated in the invoice, bill or, as the case may be, challan, on the basis of which this refund is being claimed, including the service tax payable thereon shall have been paid to the person liable to pay the service tax thereon, or as the case may be, the amount of service tax payable under reverse charge shall have been paid under the provisions of the said Act.

c)    The claim for refund shall be filed within one year from the end of the month in which actual payment of service tax was made by such Developer or SEZ unit to the registered service provider or such extended period as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall permit.

d)    The SEZ unit or the Developer shall submit only one claim of refund under this notification for every quarter:

Explanation. – For the purposes of this notification “quarter” means a period of three consecutive months with the first quarter beginning from 1st April of every year, second quarter from 1st July, third quarter from 1st October and fourth quarter from 1st January of every year.

My Comments : Previously the SEZ unit or the Developer were allowed to file any no. of claims during this period of one year i.e. they were able to file any left out cases found during ledger scrutiny. Hence now the SEZ unit or the Developer has to file quarterly refund claim more carefully because any left out cases found during ledger scrutiny or internal audit after refund claim is filed for the particular quarter will not be allowed to be filed once the refund claim is filed for the particular quarter.

e)    the SEZ Unit or the Developer who is not so registered under the provisions referred to in above point  ‘2 (a)’, shall, before filing a claim for refund under this notification, make an application for registration under Rule 4 of the Service Tax Rules, 1994.

f)     If there are more than one SEZ Unit registered under a common service tax registration, a common refund may be filed at the option of the assessee.

3.1  The service tax paid on the specified services that are common to the authorised operation in an SEZ and the operation in domestic tariff area [DTA unit(s)] shall be distributed amongst the SEZ Unit or the Developer and the DTA unit(s) in the manner as prescribed in Rule 7 of the Cenvat Credit Rules. For the purpose of distribution, the turnover of the SEZ Unit or the Developer shall be taken as the turnover of authorised operation during the relevant period.

My Comments : As per Rule 7 of the Cenvat Credit Rules,

a)    the service tax paid to be  distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon;

b)    the service tax paid which is attributable to service used wholly in a unit shall be distributed only to that unit; and

c)     the service tax paid which is attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period.

3.2 After distribution of service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in DTA units as mentioned in ‘3.1’, SEZ Unit or the Developer can claim refund relating to SEZ as per procedures and conditions mentioned in point no 2 a) to 2 f).

3.3 After distribution mentioned in ‘3.1’ DTA units can claim CENVAT credit as per CENVAT credit Rules, 2004.

4. The SEZ Unit or Developer, who intends to avail exemption or refund under this notification, shall maintain proper account of receipt and use of the specified services, on which exemption or refund is claimed, for authorized operations in the SEZ.

5. Where any sum of service tax paid on specified services is erroneously refunded for any reason whatsoever, such service tax refunded shall be recoverable under the provisions of the said Act and the rules made there under, as it is recovery of service tax erroneously refunded.

6. Notwithstanding anything contained in this notification, SEZ Unit or the Developer shall have the option not to avail of this exemption and instead take CENVAT credit on the specified services in accordance with the CENVAT Credit Rules, 2004.

CONCLUSION :  

a)    One of the important requirements of “wholly consumed in SEZ” for ab-initio exemption has been replaced with the requirement of “exclusively used for authorized operations’. Hence the concept of ‘place of use’ has been substituted for “purpose of use” of the services. Now SEZ Unit or Developer can claim ab-initio exemption of all the services which are exclusively used for authorized operations. Therefore now interpretational disputes will reduce drastically.

b)    The ab-initio exemption is optional and if the same is not availed, the refund route will be applicable. If neither ab-initio exemption nor refund route is to be availed then SEZ unit or the Developer has the option to take CENVAT credit on the specified services in accordance  with the CENVAT Credit Rules, 2004.

c)    The service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in DTA units shall be distributed as per Rule 7 of the CENVAT Credit rules i.e. the manner in which credit on input services is distributed by the input service distributor.

d)    Now the refund claim has to be filed quarterly & that too only once. Hence apart from increase of administrative work of SEZ Unit or Developer, they have to be more careful at the time of filing refund application in Form A-4 i.e. left out cases found at the time of ledger scrutiny or internal audit afterwards will not be entertained.

e)    At the option of the assessee a common refund may be filed if more than one SEZ Unit are registered under a common service tax registration.

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3 responses to “Amendment in Exemption from Service Tax/Refund of Tax Paid by SEZ –Developers/Units”

  1. Rakesh Kumar Raghav says:

    Sir
    my company is working Electrical panel field , in sidcul area , service commissioner send a notice of declaration of sales , i want formet for declination of finished goods sales

  2. SHIV SHANKAR SINGH says:

    how to deal with Swatch Bharat Cess if we are opting for Ab initio exemption. The Vendor is not charging service tax on bill. how we will deal with this.
    whether shall we ask our vendor to charge only S.B. Cess on service value or we shall make a provision from our end as S.B> Cess cannot be adjusted with CENVAT credit.

  3. Ajeet Singh says:

    Sir, Can we claim service tax refund of the inputs in
    A-4 that we have paid in DTA Unit, DTA unit use to export goods to our SEZ unit under job work.
    Please guide me and thank you very much for the article.

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