Today Ministry of Finance has released another circular on supplies to Special Economic Zone (SEZ) to provide some clarifications. These important clarifications on supply to a special economic zone(SEZ) are provided to clear various issues related to supplies to SEZ developers or units. GST India News has read the circular and presented it in simple questions and answer format so that it becomes easy to read for the taxpayer. In the past also updated you with the latest updates on supplies to SEZ by writing simple and easy articles on GST Matters.
Frequently Asked Questions on Supply to Special Economic Zone (SEZ UNIT)
Q1. Whether the services of short-term accommodation, conferencing, banqueting, etc. provided to a Special Economic Zone (SEZ) developer or an SEZ unit should be treated as an inter-State supply (under section 7(5)(b) of the IGST Act, 2017)? or an intra-State supply (under section 12(3)(c) of the IGST Act, 2017)?
Clarification:
1) As per section 7(5) (b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act in short), the supply of goods or services or both to an SEZ developer or an SEZ unit shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
Whereas, as per section 12(3)(c) of the IGST Act, the place of supply of services by way of accommodation in any immovable property for organizing any functions shall be the location at which the immovable property is located. Thus, in such cases, if the location of the supplier and the place of supply is in the same State/ Union territory, it would be treated as an intra-State supply.
2) It is an established principle of interpretation of statutes that in case of an apparent conflict between two provisions, the specific provision shall prevail over the general.
3) In the instant case, section 7(5)(b) of the IGST Act is a specific provision relating to supplies of goods or services or both made to an SEZ developer or an SEZ unit, which states that such supplies shall be treated as inter-State.
4) It is therefore, clarified that services of short term accommodation, conferencing, banqueting , provided to a SEZ developer or a SEZ unit shall be treated as an inter-State supply.
Q2. Whether the benefit of zero-rated supply can be allowed to all procurements by an SEZ developer or an SEZ unit such as event management services, hotel, and accommodation services, consumables, etc?
Clarification:
1) As per section 16(1) of the IGST Act, “zero-rated supplies” means supplies of goods or services or both to an SEZ developer or an SEZ unit. Whereas, section 16(3) of the IGST Act provides for the refund to a registered person making zero rated supplies under bond/LUT or on payment of integrated tax, subject to such conditions, safeguards, and procedure as may be prescribed.
Further, as per the second proviso to rule 89(1) of the Central Goods and Services Tax Rules, 2017 (CGST Rules in short), in respect of supplies to an SEZ developer or an SEZ unit, the application for refund shall be filed by the:
a) supplier of goods after such goods have been admitted in full in the SEZ for authorised operations, as endorsed by the specified officer of the Zone;
(b) supplier of services along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone.
2) A conjoint reading of the above legal provisions reveals that the supplies to an SEZ developer or an SEZ unit shall be zero-rated and the supplier shall be eligible for a refund of any unutilized input tax credit of integrated tax paid, as the case may be, only if such supplies have been received by the SEZ developer or SEZ unit for authorized operations. An endorsement to this effect shall have to be issued by the specified officer of the Zone.
3) Therefore, subject to the provisions of section 17(5) of the CGST Act, if event management services, hotel, accommodation services, consumables, etc. are received by an SEZ developer or an SEZ unit for authorized operations, as endorsed by the specified officer of the Zone, the benefit of zero-rated supply shall be available in such cases to the supplier.
Q3. Whether independent fabric processors (job workers) in the textile sector supplying job work services are eligible for a refund of the unutilized input tax credit on account of inverted duty structure under section 54(3) of the CGST Act, 2017, even if the goods (fabrics) supplied are covered under notification No. 5/2017-Central Tax (Rate) dated 28.06.2017?
Clarification:
1) Notification No. 5/2017-Central Tax (Rate) dated 28.06.2017 specifies the goods in respect of which refund of unutilized input tax credit (ITC) on account of inverted duty structure under section 54(3) of the CGST Act shall not be allowed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies of such goods. However, in the case of fabric processors, the output supply is the supply of job work services and not of goods (fabrics).
2) Hence, it is clarified that the fabric processors shall be eligible for a refund of unutilized ITC on account of inverted duty structure under section 54(3) of the CGST Act even if the goods (fabrics) supplied to them are covered under notification No. 5/2017-Central Tax (Rate) dated 28.06.2017.
Circular Ref. Circular No. 48/22/2018-GST dt.14.06.2018
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While supplying goods ina SEZ we created ARN and quoted on invoice. But SEZ authorities asking for LUT NUMBER. ON LINE IT SAYS NO lut AFTER arn.
Please clarify.
We created ARN ON LINE .we could not create LUT. SEZ authorities asking for LUIT which we are not able to generate.
Pleasehelp
Hello Vijay,
yes, LUT must me mentioned on the invoice. please check your submitted status by going Services > User Services > View My Submitted LUTs. Secondly see if any notices issued to you for this by going to Dashboard > Services > User Services > View Additional Notices/Orders to reply to notice issued by Tax Official. Also, you may visit your GST superintendent in your jurisdiction for clarification.
Thanks for writing !