GST update on exemption given to supply made to SEZ unit and developer

[Pradeep Jain]

GST update on exemption given to supply made to SEZ unit and developer:-

Treatment of supplies made to SEZ in GST regime has been confusing as already indicated by our earlier updates.

According to section 7(5) of IGST Act, 2017; supply of goods or services or both  to or by a Special Economic Zone developer or a Special Economic Zone unit will be treated as supply of goods or services or both in course of inter-State trade or commerce.

Notification No. 18/2017-Integrated Tax (Rate) dated 5th July, 2017 has been issued to exempt services imported by a unit or a developer in the Special Economic Zone for authorised operations, from the whole of the integrated tax leviable thereon.

Further, Notification 64/2017-Cus provides IGST exemption to all goods imported by a unit or a developer in the Special Economic Zone for authorised operations under section 3(7) of the Customs Tariff Act, 1975 read with section 5 of the Integrated Goods and Service Tax Act, 2017. Section 3(7) of Customs Tariff Act, 1975 reads as follows:-

"Any article which is imported in India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable under section 5 of the Integrated Goods and Service Tax Act, 2017 on a like article on its supply in India, on value of the imported articles as determined under sub-section (8)."

Thus, the above exemption from IGST has been given in case of goods imported into India, i.e. in case of physical import by SEZ unit or developer. It cannot be considered as applicable in case of purchase from domestic unit.

In view of above discussion, following is the status of various supplies made to SEZ unit or developer:-

1. If supplier of goods makes supply on payment of IGST and SEZ unit intends to avail the credit, the supplier will show these supplies in "B to B category" in his GSTR-1. In this case, refund will be filed by SEZ unit or developer.

2. If supplier of goods makes supply on payment of IGST and SEZ unit or developer does not intend to avail the credit; the supplier will claim the refund of tax so paid.

3. If the supplier supplies the goods under bond or undertaking to SEZ unit or developer, he will be eligible to claim the refund.

Thus, the drafting of law is such that the IGST payable on physical import of goods will be exempted while indigenous procurement of goods by SEZ unit or developer will be at par with physical exports. In other words, the supply to SEZ unit or developer shall have to be made either on payment of IGST or under bond/LUT. If we interpret that even the domestic supplier is allowed the exemption under notification no. 64/2017-Cus; then it will make the provisions of bond/LUT as redundant in case of supply to SEZ unit and developer.

The content of this GST update is for educational purpose only and not intended for solicitation.

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