Goods and Service Tax (GST), a tax regime which was referred by our PM as
Goods & Simple Tax, has proved to be a tax heaven for the Special Economic Zone (SEZ ) Developers & the units therein. It has reduced the bout of heavy compliances which was nothing but a sheer scourge for the Entrepreneurs focusing on increasing the Export turnover and the foreign exchange reserve of our country. The norms for the SEZ units & developers in GST is similar to what they were in various tax laws in the previous regime. However the essence of GST lies with the simplification of the procedural conformity and generalization of law insights.
The Finance Minister, Mr. Jaitely, and GST council has included the Supply to SEZ developers & units under the ambit of Zero-Rated Supply and have entitled them as
Inter-State Supply under the Integrated Goods & Service Tax Act, 2017 (The IGST Act). This means that the recipient to whom such supplies are made is liable to pay IGST @ 0%. Also the Input Tax credit provisions contained in Central Goods &
Service Tax Act (CGST Act) permits the credit of input tax availed for making Zero rated Supplies. The GST regime has encouraged the suppliers to make hassle-free supplies since Registration Rules mandates the registration of SEZ unit as a separate business vertical and thus the Supplier making Zero rated Supply is not responsible for the misuse since the SEZ developer or the unit would have issued the GSTIN of that Zone.
The Suppliers have two options to claim refund:
- Making supplies under a Bond or Letter of Undertaking without IGST payment and claiming refund for the unutilised input tax credit
- Or Payment of IGST and claim refund of the taxes paid on such supplies.
Now let's suppose there is trader in Delhi Mr, X who has to supply fabrics to ABC Cop- a SEZ in Gurugram. The fabrics attracts a levy of Tax rate @ 5% and Mr X would have paid such tax amount on the invoice value at the time of purchase of the goods. Once Mr X supplies these good to ABC Corp. he has two ways for enacting this transaction:
- Taking credit of Input Tax in his electronic register, Making Supply to ABC Corp without mentioning IGST on the invoice issued to ABC Corp, Serving the LUT or Bonds per his/her status and Obtain proof of admittance from SEZ officer along with ensuring compliance with all other conditions and Claim refund for the input tax paid.
- In other option, the Mr X shall follow the same procedure and pay IGST on supplies made and claim refund for the IGST paid instead of credit on Input tax.
The essence of equating the supplies made to SEZ to Exports lies in the SEZ Act which states that SEZ shall be considered as a Zone deemed to be outside the custom boundaries of our Country. Thus working on the idea of preventing the export of taxes, the supplies to SEZs are included in Zero Rated Supply. With the motion of equating supplies to SEZ by a unit in Domestic Tariff Area (DTA) as Exports, the supplies from SEZ to such units is regarded as Import. The physical imports from SEZ are governed by the amended provisions contained in the Customs Act , SEZ Rules and the other laws made therein which require the importer (unit in DTA) to pay IGST in addition to Basic Custom Duty (BCD) at the time of assessment of the Bill of Entry filed in Customs Tariff Act.
However, an ambiguity exist with respect to the supply of Service from SEZ to Non-SEZ units since no specific description about the same is given in SEZ Rules. The same may be considered as an import of Service since import of Service requires:
- service provider to be located outside India,
- service recipient to be located in India and
- and Place of supply is in India
And SEZ Act considers SEZ as a zone outside the India. But no clear adoption of the said consideration is given under the GST Act. Thus it can either be considered as an import of service or Inter-State supply attracting reverse charge mechanism.Clarification from the Ministry is a must on this.