No tax on services used within SEZ

Updated: Jul 19 2013, 06:30am hrs
We are a Delhi-based management consultancy. We provide to SEZ units services that are carried out within the SEZ. In this regard, we wish to understand if benefit under notification 40/2012-ST dated June 20, 2012 would be available to us by way of exemption. Kindly suggest.

As per the above notification, upfront exemption was provided in case services received are wholly consumed within the SEZ. Further, in order to determine if the service has been wholly consumed within the SEZ a reference was made to the Place of provision of Service Rules, 2012.

However, please note that the CBEC has recently issued a notification 12/2013-ST dated July 1, 2013 superseding the earlier notification. The present scheme extends the benefit of upfront exemption to all taxable services received and used exclusively for the authorised operations of the SEZ Developer/SEZ unit contrary to the previous scheme which restricted upfront exemption from payment of service tax to services wholly consumed within the SEZ.

Accordingly, in case management consultancy services provided by you are used exclusively for authorised operations of the SEZ developer/SEZ Unit, then services provided by you would qualify for exemption from service tax, subject to certain procedural conditions.

No entry tax in West Bengal

Our company manufactures garments in Darjeeling, West Bengal. We have been informed that recently some amendment has been made with regard to the applicability of entry tax in the state of West Bengal. Can you please give us the exact details of the amendment

Please note that there has not been any amendment in the entry tax laws of West Bengal. Instead, a judgment has been issued by the High Court of West Bengal, in the case of Impex Metals & Ferro Alloys Ltd, Siemens Ltd, Eveready Industries India Ltd and Century Extrusions Ltd relating to the constitutional validity of West Bengal Entry tax Act, 2012. The judgment delivered on June 26, 2013 held the West Bengal Entry Tax Act to be ultra vires Section 304(b) of the Constitution, on the grounds that the same is non-compensatory and unconstitutional in nature.

The key reason for the same was that the Act does not indicate the quantifiable or measurable benefits to be provided in lieu of the levy. Further, prior sanction of the President of India was not obtained before the enactment of the said Entry Tax Act. The High Court held that since the state government failed to substantiate the compensatory nature of such entry tax, the levy of entry tax is un-constitutional in nature. Given the above, in the light of the High Court ruling, no entry tax would be applicable until a new legislation is introduced.

Service tax to be paid on hiring taxis

Our company hires cars from the nearby taxi stand (as and when required) for the travel of our officers. What is the applicability of reverse charge (notification 30/2012-ST) in this case

Normally, service tax is payable by the person providing the service. However, Section 68(2) of the Finance Act, 1994 vide Notification No. 30/2012-ST dated June 20, 2012 provides for payment of service tax on a reverse charge basis i.e. by the person receiving the service.

As per the Notification No. 30/ 2012, in case a registered company receives services in relation to hiring of motor vehicles on rent from a service provider who is either an individual or a Hindu undivided family or a firm, then partial service tax needs to be paid by the recipient of services.

Effectively 40% of service tax is to be paid by the service recipient, currently 4.94% (40% of 12.36%).

It is pertinent to note that in case the bill for car hire is issued in the name of employee and paid by him, and the company is only making a reimbursement to the employee, then the employee would be construed to be the service receiver and the company will not be liable to pay service tax under reverse charge. However, if the bill is in name of the company, service tax under reverse charge will have to be paid, if the service provider is an individual, HUF etc.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies.