Case nº Ruling No. AAR/ST/06/2011 in Application No. AAR/ST/44/13/2010 of Authority for Advance Rulings, May 13, 2011 (case MAS-GMR Aerospace Engineering Company Limited. Vs The Commissioner of Central Excise and Customs)
| President | P.K. Balasubramanyan, J. (Chairman), J.K. Batra and J. Khosla, Members |
| Resolution Date | May 13, 2011 |
Judgment:
J.K. Batra, Member
1. MAS-GMR Aerospace Engineering Company Ltd, the applicant is a joint venture company of GMR, Hyderabad International Airport Limited, Hyderabad and Malaysian Aerospace Engineering, SDN-BHD, Malaysia. The applicant has obtained a registration as a co-developer of an aviation specific SEZ adjacent to the Hyderabad Airport. The applicant either through itself or its 100% subsidiary or by a Special Purpose Vehicle (SPV) has proposed to set up a unit within the SEZ. The applicant has proposed to provide maintenance, repair and overhauling (MRO) facilities to domestic as well as foreign aviation entities. The applicant proposes to enter into a contract with an overseas entity located in Singapore who will procure contracts for MRO services from domestic and foreign airlines. The overseas entity will sub-contract to the applicant the contract for MRO services which will be carried out in the SEZ. The applicant will be paid in convertible foreign exchange by the overseas entity. The applicant also proposes to enter into direct contracts with domestic and foreign airlines who will pay the applicant in convertible foreign exchange.
2. The applicant proposes to carry out the entirety of the MRO services within the SEZ. According to the applicant the activity of repair gets concluded when the repair is carried out on the aircraft. Therefore, the service is received by the recipients as soon as the repair activity is carried out inside the SEZ. The consumption of the service is also therefore simultaneous.
The applicant has requested for a definitive ruling on the following questions:
(1) Whether service tax is applicable on the services rendered by the applicant to the overseas entity for contract with:
(a) Domestic airlines who operate domestic flights to India;
(b) Domestic airlines who operate international flights; and
(c) Foreign entities who operate international flights.
(2) Whether service tax is applicable on the services rendered by the applicant directly to:
(a) Domestic airlines who operate domestic flights to India;
(b) Domestic airlines who operate international flights; and
(c) Foreign entities who operate international flights.
(3) Whether in view of the provisions relating to Sections 51 and 53 of the SEZ Act, 2005, service tax will not be chargeable on the services rendered within the SEZ?
(4) Whether MRO services proposed to be carried on by the applicant will be chargeable to service tax on an interpretation of Section 66A of the Finance Act, 1994 read with Rule 3(ii) of the Import of Service Rules
(5) Whether MRO services rendered to the overseas entity for:
(a) Domestic airlines who operate domestic flights to India;
(b) Domestic airlines who operate international flights; and
(c) Foreign entities who operate international flights.
will qualify as export of services under the Export of Service Rules,2005?
3.1. Section 53(1) of the Special Economic Zones Act, 2005, by way of deeming fiction, regards an SEZ to be a territory outside the Customs territory of India for the purposes of undertaking authorized operations in the SEZ. Further, Section 51 of the SEZ Act provides that the provisions of SEZ will have effect notwithstanding anything inconsistent therewith in any other law. Therefore, it is the applicant's contention that the provisions of the SEZ Act have an overriding effect and will prevail over any other provision which may be inconsistent with the provisions of the SEZ Act. The applicant submits that since SEZ is to be regarded as a territory outside the customs territory of India for the purpose of authorized operations, all laws including Chapter v. of the Finance Act, 1994 relating to service tax will not apply to activities in relation to authorized operations carried out within the territory of the SEZ. The MRO services proposed to be carried out in the SEZ are part of the authorized operations of the SEZ. Therefore, according to the applicant service tax will not be applicable on the MRO services to be provided by the applicant and received within the SEZ which is deemed to be a territory outside India.
3.2. It has been argued by the applicant that the deeming fiction created by Section 53 (1) of SEZ Act has to be given its full effect and it has to be interpreted in a manner that benefits the SEZ and thus service tax is not applicable to the activities carried out by the applicant inside the SEZ. Moreover, since the entire activity is carried out inside the SEZ itself, it has no territorial nexus with the DTA where the Finance Act is applicable. In the absence of any territorial nexus, the activity of the applicant, it has been claimed, is not eligible to service tax.
3.3. The applicant further contends that even though the provisions of Finance Act, 1994 apply to the entirety of India except Jammu and Kashmir, in view of the deeming fiction created under Section 53(1) of the SEZ Act, the said Finance Act will not apply to services rendered in the SEZ unless there is specific provision in the SEZ Act itself permitting levy of service tax on services rendered in the SEZ. The applicant has referred to the following provisions of the SEZ Act to suggest that SEZ territory is deemed to be a territory outside India for the purposes of fiscal levies -
(a) "domestic tariff" area has been defined to mean the whole of India but excluding the areas of...
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