Exemptions Under SEZ Act, 2005 Overrides Finance Act, 1994: CESTAT

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the exemption available under the Special Economic Zones Act, 2005 overrides the provisions of the Finance Act, 1994. The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) ruled that service tax cannot be levied on rent-a-cab and employee transportation services provided to Special Economic Zone (SEZ) units for carrying out authorised operations. The dispute arose after the Department alleged that SMTT Holidays had failed to pay service tax on hire charges collected for transportation of employees of M/s Computer Science Corporation of India Pvt. Ltd., located in the MEPZ-SEZ. A show cause notice dated 20 June 2012 was issued invoking the extended period of limitation for the period from May 2008 to April 2011. The adjudicating authority confirmed the demand along with interest and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The assessee contended that the Department had wrongly interpreted Notification No. 04/2004-ST by assuming that services must be physically rendered entirely within the geographical limits of the SEZ to qualify for exemption. The appellant argued that Section 26(1)(e) of the SEZ Act grants a substantive exemption from service tax on taxable services provided to SEZ developers or units for authorised operations and that such exemption is not dependent upon the place where the services are performed. The appellant further submitted that transportation of employees is intrinsically connected to the functioning and authorised operations of the SEZ unit, since movement of staff is essential for carrying on business activities within the SEZ. It was also argued that the extended period of limitation and penalties were not invocable because the issue involved interpretation of law and the assessee had acted on a bona fide belief supported by judicial precedents. The Tribunal examined the issue of whether providing cars on hire to an SEZ unit is liable to service tax and relied heavily on its earlier coordinate bench decision in PRR Travels v. Commissioner of GST & Central Excise, Chennai. Referring to Sections 26 and 51 of the SEZ Act, the Tribunal observed that the SEZ Act is a special legislation enacted to promote exports and investment by granting fiscal incentives and minimum regulatory interference. The Bench noted that Section 51 gives overriding effect to the SEZ Act over anything inconsistent contained in any other law, including the Finance Act, 1994. The Tribunal further held that Section 26(1)(e) specifically grants exemption from service tax on taxable services provided to SEZ developers or units for carrying out authorised operations. According to the Bench, the situs or location where the service is rendered is irrelevant so long as the service is provided to an SEZ unit for authorised operations. CESTAT also observed that the SEZ Act is a self-contained legislation providing exemptions relating to taxes, duties and services supplied to SEZ developers and units. Therefore, separate exemption notifications under Section 93 of the Finance Act were not necessary when the statutory exemption under the SEZ Act itself applied. Rejecting the Department’s argument that “rent-a-cab services” were included in the approved list of authorised services only from November 2013, the Tribunal noted that the show cause notice itself did not allege that the services were unrelated to authorised operations. Hence, such a ground could not be introduced later during adjudication. The Bench held that the impugned order confirming service tax demand could not be sustained. Accordingly, the Tribunal set aside the demand and allowed the appeal with consequential relief. Case Details Case Title: M/s. SMTT Holidays Versus Commissioner of GST & Central Excise Citation: JURISHOUR-1199-CES-2026(CHE) Case No.: Service Tax Appeal No.41002 of 2017 Date: 08.05.2026 Counsel For Appellant: A. Dhamodharan, Advocate Counsel For Respondent: M. Selvakumar, Authorised Representative Click Here To Read Order Read More: IFSCA Notifies Comprehensive IFSC Fund Management Framework, Tightens Investor Protection Norms

Exemptions Under SEZ Act, 2005 Overrides Finance Act, 1994: CESTAT

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