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10. Section 7 of SEZ Act provides exemption from payment of taxes, duties, or cess on goods or services exported out of or imported into or procured from the domestic tariff area by the unit or developer, under all enactment specified in the first schedule. Section 26 of the SEZ Act provides certain exemptions, drawbacks and concessions to a developer and entrepreneur subject to conditions stipulated therein. However, section 27 of the SEZ Act, 2005, specifically deals with applicability of provisions of Income Tax Act, 1961 to a SEZ unit. For ready reference the said provision is extracted herein below:-

―27. The provisions of the Income-tax Act, 1961, as in force for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorised operations in a Special Economic Zone or Unit subject to the modifications specified in the Second Schedule.‖

11. As could be seen from the reading of the aforesaid provision, the provision of the Income Tax Act, 1961 shall apply to a developer or entrepreneur for carrying on the authorized operations in SEZ subject to the modification specified in the second schedule. In furtherance to provisions of section 27 of SEZ Act, 2005, section 10AA of the I.T. Act was incorporated in the second schedule to SEZ Act, 2005. Therefore, in terms of section 27 of SEZ Act, provisions of M/s. Sarto Electro Equipment Pvt. Ltd.

juxtaposition to the definition of ―Export‖ under section 2(m) of the SEZ Act, it is to be seen while clause (i) of section 2(m) of SEZ Act, was incorporated under Explanation-1(ii) of section 10AA of the I.T. Act, however, clause (ii) and (iii) of section 2(m) of the SEZ Act, 2005, were left out. Thus, from the aforesaid fact, it is clear that the legislature took a conscious decision in leaving out certain portion of definition of "export" as provided under section 2(m) of SEZ Act, while defining "export in relation to the SEZs" under Explanation- 1(ii) of section 10AA of the I.T. Act. Thus, it becomes clear that the intention of the legislature while enacting the provisions of section 10AA is to confine the exemption only in respect of direct export sales and not in respect of exports as provided under clause (ii) and

have provided such exemption either under section 7 of SEZ Act, 2005, by including income Tax Act, under the first schedule or even under section 26 of SEZ Act, 2005, which provides for exemption, drawback and concession in respect of custom duties, excise duty, service tax, securities transaction tax, central sales tax, etc. As far as I.T. Act is concerned, section 27 of the SEZ Act provides for its applicability subject to the modification brought under second Schedule which in other words, means that exemption in terms of section 10AA is to be allowed to SEZ unit / developer. The contention of the learned Authorised Representative that provisions of section 2(m)(iii) would apply to even section 10AA in view of the overriding provisions of section 51 of the Act, in our view, is not acceptable because there is no inconsistency between the provisions of section I.T. Act, 1961 and the provisions contained in SEZ Act, 2005. as section 27 of SEZ Act, 2005, makes it clear that the provisions of I.T. Act would apply to SEZ unit subject to modification provided under second Schedule. Thus, by virtue of provisions contained under section 27 of SEZ Act, 2005, r/w second Schedule, the provisions contained under section 10AA would be applicable to SEZ units. Therefore, as per the definition of "export in relation to SEZ units" as provided under Explanation-1(ii), a unit / developer claiming exemption has to export goods / service, out of India from M/s. Sarto Electro Equipment Pvt. Ltd.