Sub-Contractor Executing Works Within SEZ Entitled To Service Tax Exemption Even If Services Routed Through Main Contractors: CESTAT

The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that a sub-contractor executing works within a Special Economic Zone (SEZ) is entitled to service tax exemption even if the services were routed through main contractors and not provided directly to the SEZ developer or unit. The bench of Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) has relied upon the decision in Commissioner of Service Tax, Mumbai-I v. Fedco Paints and Contracts, wherein it was held that services consumed within an SEZ are exempt from service tax irrespective of whether they are provided through contractors or sub-contractors. The dispute arose after the Revenue alleged that the appellant had rendered taxable services under “Works Contract Services” and “Supply of Tangible Goods Services” without discharging service tax liability. The adjudicating authority had confirmed service tax demands aggregating to more than ₹7 crore, including ₹5.31 crore relating to services rendered as a sub-contractor for SEZ projects. According to the appellant, it had predominantly executed composite works contracts in relation to the setting up of SEZ infrastructure and had acted as a sub-contractor for major contractors engaged in projects for ONGC Mangalore Petrochemicals Ltd. and other SEZ units. The company contended that services consumed within SEZs are exempt from service tax under Notification No. 4/2004-ST and that such exemption could not be denied merely because the services were rendered through a main contractor. The Tribunal accepted this contention and observed that the notification only required that the services be rendered for consumption within the SEZ. It noted that the appellant had executed infrastructure projects such as roads, drains, tanks, foundations and access roads for SEZ units through contractors including ANS Constructions Ltd., Vishal Structurals Pvt. Ltd. and SKE & C-KCT-JV. Rejecting the Revenue’s objection that the appellant was merely a sub-contractor and not a direct service provider to the SEZ unit, the Tribunal held that such an interpretation was unsustainable. It also referred to Rule 10 of the SEZ Rules, 2006, which extends exemptions and concessions available to developers and co-developers to contractors and sub-contractors engaged for authorised operations. The Tribunal set aside the service tax demand of ₹5.31 crore raised on the appellant in respect of services rendered as a sub-contractor for SEZ projects. However, the Tribunal upheld the undisputed service tax demand of ₹1.39 crore relating to works contract services rendered outside SEZs. The appellant had admitted that due to financial constraints and delayed receipt of payments from customers, it had failed to discharge service tax liabilities on time and had filed returns belatedly. The Tribunal also upheld service tax demands of ₹4.56 lakh under “Supply of Tangible Goods Services” and ₹14.24 lakh relating to road construction services where the appellant had collected service tax from clients. On the issue of Cenvat credit denial amounting to ₹71.97 lakh, the Tribunal held that during the disputed period from 2008 to 2012, there was no statutory time limit for availing Cenvat credit. It observed that the six-month limitation for taking credit was introduced only with effect from September 1, 2014 through Notification No. 21/2014-CE(NT). The bench therefore rejected the Commissioner’s finding that credit availed after 18 months was inadmissible. At the same time, it remanded the matter to the adjudicating authority for verification of supporting documents and invoices, particularly in cases where invoices were issued in the names of parties other than the appellant. The Tribunal further held that the quantification of interest and penalties would depend upon the final determination of admissible Cenvat credit and adjustment of tax payments. Consequently, the penalties imposed on the appellant were set aside and the matter was remanded for fresh verification and re-quantification. Case Details Case Title: M/s. Dix Engineering Project Services Pvt. Ltd. Versus The Commissioner of Central Excise and Service Tax Citation: JURISHOUR-1196-CES-2026(BANG) Case No.: Service Tax Appeal No. 21743 of 2015 Date: 06.05.2026 Counsel For Appellant: N. Anand, Advocate Counsel For Respondent: Rajshekar. B. N.N, Superintendent (AR) Click Here To Read Order Read More: No Service Tax Payable By Research Institutes On Grants-In-Aid Received From Government: CESTAT

Sub-Contractor Executing Works Within SEZ Entitled To Service Tax Exemption Even If Services Routed Through Main Contractors: CESTAT

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