MAS-GMR AEROSPACE ENGINEERING COMPANY LIMITED Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(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.

(3.) 1. Accordingly to the applicant the MRO activities proposed to be undertaken by it are covered by the taxing entity of "management, maintenance and repair services" as under Clauses (64) & (105) (zzg) of Section 2 of the Finance Act, 1994. However, the liability to service tax will arise only if such services satisfy the test of territorial nexus and whether such services fall within the ambit of charge created under Section 66A of the Finance Act read with the exemption provided under the Import of Service Rules [that is, the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006]. The applicant submits that since the performance of the service is in a SEZ which is wholly outside India, the service will not be regarded as import of services in India in terms of Rule 3 (ii) of the Import of Service Rules. Consequently no service tax is leviable on MRO services proposed to be rendered by the applicant to foreign and domestic airlines within the territory of SEZ. As per the applicant this position will apply both for contracts undertaken on behalf of overseas entity as well as those undertaken directly for foreign or domestic airlines.