The Authority for Advance Rulings has held that Maintenance, Repair and Overhauling Services (MRO) MRO services undertaken inside SEZ do not fall under 'authorised operations' and will not be eligible for Service Tax exemption.
According to the AAR, such services cannot be said to be rendered 'outside India' and they will be leviable to Service Tax under Section 66 of Finance Act, 1994. The applicant's contention that such services rendered to foreign entities and domestic airlines operating international flights would qualify as export of services, was also rejected. The AAR ruling reasons that SEZs form a part of territory of India and there is no export of services involved in such transaction.
The applicant had relied on Section 53(1) of the SEZ Act, 2005. This provides that a SEZ shall be deemed to be outside 'Customs territory of India' for purposes of undertaking authorised operations. The AAR ruling states that extending the application of the said provisions to service tax and further holding the area SEZ to be physically outside India as defined in the Constitution is incorrect. Whereever applicable fiscal levies or any other law is to be modified, specific provisions like Section 27 of the SEZ Act or notifications like Notification No. 9/2009-ST dated 3-3-2009 have been given.