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THE government has exempted special economic zones (SEZs) from the purview of service tax for the services availed within the zone. This restores the relaxation which was available to investors in SEZs earlier, but was taken away for a brief period starting early March, when the government tried to bring parity between the tax applicable on services availed inside and outside the SEZ.

The Central Board of Excise and Customs (CBEC) was able to notify the changes as the Election Commission's (EC) model code of conduct for politicians and government servants is now out of the way. The notification says unconditional exemption would be available to the services utilized within the SEZ without following the refund route. The exemption by way of refund would be limited to situations only when taxable services provided to SEZ are consumed partially or wholly outside the SEZ, said a partner with consultancy firm Ernst & Young. Earlier, the EC had refused to allow the finance ministry to restore the exemption while elections were on as it could have resulted in direct benefits to a section of the electorate, a government official has said. The notification will soon be posted on the CBEC website. The finance ministry had in early May made the service tax paid for the services availed within an SEZ refundable, at par with those availed outside the SEZ. The commerce department, on behalf of SEZs, recommended to the finance ministry to restore the exemption. "This is a positive move and we welcome it. Government is finally giving back the benefits that SEZ's used to enjoy," said LP Singhal, director general of Export Promotion Council for EOUs and SEZs. But the ambiguities in the notification may lead to further confusion. Hitender Mehta of Assocham said that there could be litigation on the tax treatment of services availed within the SEZ's between early March and May 20 as the notification is silent on whether it is applicable retrospectively.

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