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Maintenance Services Provided In SEZ Are Liable For Service Tax


The Authority for Advance Rulings (AAR) has held that maintenance, repair and overhauling ("MRO") of services provided by a SEZ unit for domestic as well as foreign aircrafts is liable to service tax in India. Taxand India examines the case and the ruling in detail.

Ruling of the AAR

  • Service tax is applicable on the services rendered by the applicant to the overseas entity which has in turn contracted for the MRO services with the airlines
  • Service tax is also applicable on the services rendered directly by the applicant to the airlines
  • There is no exemption available to services provided within the SEZ under the SEZ Act or the Finance Act
  • Section 66A of the Finance Act applies only if services are received from outside India and will not apply to MRO services provided within an SEZ.
  • MRO services do not qualify as export of services since the services are not performed outside India (condition applicable to "maintenance or repair service" category).

Taxand's Take

This is the first ruling in the context of service tax holding that an SEZ is within India and thus, subject to the Indian fiscal laws. The ruling also explains that the import/export rules would not apply to services provided in a SEZ. This ruling reiterates the view laid down by the Courts that an SEZ is a part of India.

Though the AAR ruling is binding only on the Applicant and the Revenue officers having jurisdiction over the Applicant, it has persuasive value and could further strengthen the view that SEZs are to be treated as being outside the jurisdiction of the customs law for specified purposes only.

Read more on the tax issues of services in Special Economic Zones from Taxand India

Your Taxand contact for further queries is:
Rajeev Dimri
T. +91 11 3081 5000

Taxand's Take Author