The exemption from service tax to services received by SEZ developers and units has been significantly recast by notification 17/2011-ST of 1 March that replaces notification 9/2009-ST of 3 March 2009.
Notification 17/2011 continues the earlier scheme of exemption, viz. services consumed wholly within an SEZ enjoy an upfront exemption (the service provider need not charge service tax), whereas for services not consumed wholly within the SEZ the exemption is available through a refund mechanism (the service provider charges service tax, which is refundable to the service recipient).
What constitutes consumption wholly within the SEZ has been a vexing question and the seed of many disputes with the tax authorities.
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