Our unit is located in a SEZ and we receive maintenance services from our input service vendors. Kindly clarify if we would be required to pay service tax on such input services and thereafter claim a refund or whether an outright exemption from service tax be available to us.

Notification no.17/2011?Service Tax dated March 1, 2011, exempts taxable services received by a unit located in an SEZ for its authorised operations (the list of taxable services which are required for authorised operations should be obtained from the Unit Approval Committee).

The exemption is generally given by way of a refund. It is only where the service qualifies as ?wholly consumed within SEZ? that an outright exemption would be available. The term ?wholly consumed within SEZ? has been linked with the Export of Service Rules, 2005. We understand that you receive ?management, maintenance and repair service? from your vendors. ?Management, maintenance and repair service? qualifies as ?wholly consumed within SEZ? only if such services are wholly performed within the SEZ. Hence, in case such services are performed wholly within the SEZ, an upfront exemption from payment of service tax would be available.

However, in case such services are not performed wholly within the SEZ, they will not qualify as ?wholly consumed within SEZ?. In such case, service tax would be required to be charged by the vendor and your unit, after payment of service tax to the vendor, can claim a refund of such tax.

Our call centre provides services to our clients located outside India. We had not paid service tax in the belief that such services qualify as exports and are also based on the clarification by the department in February 2009 that call centre services are exports. We understand that another clarification has been issued by the department on this issue. Would this recent development affect our services?

You are correct that during the period up to February 2010, one of the conditions for business auxiliary services (which cover call centre services) to qualify as exports is that the service should be ?used outside India?. The circular of February 2009 clarified that for services such as business auxiliary services, the term ?used outside India? means that the benefit of such service should accrue outside India. In fact the circular specified that call centres engaged by foreign companies to attend to calls from customers or prospective customers from all around the world including from India would qualify as exports since the benefit of such services accrue outside India.

However, the circular of May 2011 clarifies that the term ?accrual of benefit? should be interpreted in the context where the effective use and enjoyment of such service has been obtained. The effective use and enjoyment of the service will depend on the nature of the service.

With respect to call centre services, this circular stipulates that services provided by call centres that serve customers located outside India for their clients would qualify as export. However, this circular is conspicuously silent on the issue of whether servicing of Indian customers of clients located outside India would qualify as exports.

Given this new development, in case you also attend to calls from Indian customers of your foreign clients, the tax authorities could contend that such services do not qualify as exports. However, based on the circular of February 2009, you have a reasonable ground to argue that where a clear benefit has been provided to an assessee, its benefit cannot be subsequently restricted.

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