CESTAT Chennai: Service Tax Not Payable on Rent-A-Cab Services Provided to SEZ Units Due to Overriding SEZ Act Exemption
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has held that service tax is not leviable on rent-a-cab services provided to entities located in Special Economic Zones (SEZ), recognising the overriding effect of Section 51 of the Special Economic Zones Act, 2005. The Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) ruled that the SEZ Act is a self-contained legislation, extending exemptions from taxes, duties, cess, drawbacks and concessions on supply of services to SEZ developers and units for authorised operations. Consequently, in terms of Sections 26 and 51 of the SEZ Act, a separate notification under Section 93 of the Finance Act, 1994 is not required to justify exemption from service tax when services are rendered to SEZ units.
The appeal concerned PRR Travels, which provided rent-a-cab services to an SEZ unit for employee transportation. A show cause notice was issued alleging wrongful availment of exemption under Notification No. 04/2004-ST dated 31.03.2004 for the period July 2009 to March 2010 on the ground that the services were rendered outside the physical boundaries of the SEZ and therefore were not “consumed within SEZ”. After adjudication, service tax of ₹46,14,467 along with interest was confirmed, ₹37,98,400 paid by the assessee was appropriated against this demand, and a penalty was imposed under Section 76 of the Finance Act, 1994. The Commissioner (Appeals) dismissed the assessee’s challenge, leading to the present appeal before the Tribunal.
During appeal, the assessee argued that all services were exclusively provided to an SEZ unit for its employees and therefore entirely consumed for authorised operations. It was contended that the exemption structure for SEZ-related services evolved through Notifications 4/2004-ST, 9/2009-ST and 15/2009-ST, and that procedural non-compliance could not override the substantive exemption available under the SEZ Act. The appellant also placed alternative reliance on Section 26 of the SEZ Act, which provides ab initio exemption from service tax on taxable services supplied to SEZ developers or units, and referred to Section 51, which gives the SEZ Act overriding effect over all other enactments.
The Department maintained that exemption was available only for services proved to have been consumed entirely within SEZ premises and argued that rent-a-cab transportation for employees could not be conclusively demonstrated as an activity performed exclusively inside the SEZ enclave. It was further contended that an authorised list of services for which SEZ developers and units could claim tax exemption without obtaining case-specific approval included rent-a-cab services only from November 2013 and that the appellant could not claim benefit for the disputed period.
In its ruling, the Tribunal rejected the Department’s position and found the demand unsustainable. It held that Sections 26(1)(e) and 51 of the SEZ Act override inconsistent provisions of the Finance Act, meaning that the situs of service provision — whether within or partly outside SEZ — is immaterial, so long as the service is supplied to an SEZ developer or unit for authorised operations. The Tribunal emphasised that when a special statute grants exemption, it cannot be nullified through procedural restrictions imposed under a general statute. It also observed that there was no allegation in the show-cause notice that rent-a-cab services were not used for authorised operations, making the Department’s argument beyond the scope of the original proceedings.
Concluding that the assessee was entitled to exemption from service tax by virtue of the SEZ Act, the Tribunal set aside the impugned demand and penalties in full. The appeal filed by PRR Travels was accordingly allowed with consequential relief.
Appearance
Counsel for Appellant/ Assessee: S. Sridevi
Counsel for Respondent/ Department: G. Kripa
Cause Title: M/s. PRR Travels v. Commissioner of GST & Central Excise
Case No: Service Tax Appeal No. 42331 of 2016
Coram: Ajayan T.V. (Judicial Member), M. Ajit Kumar (Technical Member)
