If the services were received by SEZ for their SEZ operations and were ultimately consumed within SEZ, they are eligible for exemption under Notification No.4/2004-ST dated 31-3-2004. The said Notification was inconsistent with section 51 of SEZ Act – If the transaction is of sale of software and CST is paid on the same, it would not form part of value of taxable services in respect of professional services for ERP implementation – The privity of contract being between an Indian entity and a fo<

Three issues were involved in the matter:

• The appellant availed benefit of exemption Notification No. 4/2004-ST dated 31-3-2004 in respect of professional services of internal audit and indirect support services, rendered to SEZ units. Department denied the exemption on the ground that the services were not consumed within SEZ. However, the appellant submitted that service receivers were granted a letter of approval by the Government of India, Ministry of Commerce to act as developer/unit and these entities were operating in SEZ and did not have other place of business. Therefore, the services were consumed exclusively for SEZ operations and within SEZ and the exemption was available to them.

• The appellants also rendered professional services in relation to ERP implementation and had purchased the software, the price of which was subsequently reimbursed by the service receiver. The department demanded service tax on such software considering it part of the value of taxable service essential for implementation of ERP system. According to the appellants, the supply of software was transaction of sale whereon CST was paid on it as there was a transfer of property in goods.

• The appellants rendered professional services for the infrastructure project in India of Indian Government for & on behalf of PricewaterhouseCoopers (PWC) Lanka (Pvt.) Ltd., Sri Lanka. The department demanded service tax on the ground that one of the pertinent conditions for export of services is that the services are delivered outside India and used outside India and this is not satisfactory in the present case. The appellants submitted that they did not have any privity of contract with the Indian Government and the beneficiary of services was PWC Lanka (Pvt.) Ltd., Sri Lanka outside India who was ultimately responsible for deliverables and even though the work was carried out in India, the same was delivered outside India.

Held:

• SEZs are deemed to be foreign territory for trade operations. SEZs are formed to promote exports and earn foreign exchange and for the overall economic development of India. In the present case, it was not disputed that the services were utilised by SEZ and therefore, were ultimately consumed within SEZ. The said notification used wordings consumption of services within SEZ, which were inconsistent with section 51 of the SEZ Act, 2005. Since Section 51 of SEZ Act has an overriding effect on all other laws and also having regard to the intention of the Government, the benefit of exemption was available to the appellants.

• Since the software was sold, there was no service involved and the same would not form part of the taxable value of services and as such, not leviable to service tax.

• As per the contractual arrangement, entity at Sri Lanka was beneficiary of the assignment and the services were delivered from India and used outside India. Therefore, the present case was covered under export of services not leviable to Service tax.