ACCOMMODATION SERVICES TO SPECIAL ECONOMIC ZONE

[Mr. M. GOVINDARAJAN]

Short term accommodation services

Vide Circular No. 48/22/2018-GST, dated 14.06.2018 the CBIC has clarified the issues relating to the accommodation services as below-

• Section 7(5)(b) provides that the supply of goods or services or both to a SEZ developer or a SEZ unit shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.  Section 12(3)(c) of the Act provides that 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 intra-State supply.
• Section 7(5)(b) is a specific provision relating to supplies of goods or services or both made to a SEZ developer or a SEZ unit which states that such supplies shall be treated as inter-State supplies and it will prevail section 12(3)(c) of the Act. 
• Therefore the services of short term accommodation, conferencing, banqueting etc., provided to a SEZ developer or a SEZ unit shall be treated as inter-State supply.

Zero rated supply

The above said circular also clarified the issue as to whether the benefit of zero rated supply can be allowed to all procurements by a SEZ developer or a SEZ unit such as event management, hotel and accommodation services consumables etc.,

Section 16(1) of the IGST Act defines the expression ‘zero rated supplies’ as supplies of goods or services or both to a SEZ developer or a SEZ unit.  Section 16(3) of the said Act provides for 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 CGST Rules, 2017 in respect of supplies to a SEZ developer or a SEZ unit, the application for refund shall be filed by the-

• suppliers of goods after such goods have been admitted in full in the SEZ for authorized operations, as endorsed by the specified officer of the Zone;
• supplier of services along with such evidences regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone.

The circular further states that a conjoint reading of the above legal provisions reveals that the supplies to a SEZ developed or a SEZ Unit shall be zero rated and the supplier shall be eligible for refund of unutilized input tax credit or integrated tax paid, 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.

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 a SEZ developer or a 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.

Advance Rulings

In re ‘IN RE: M/S. CARNATION HOTELS PRIVATE LIMITED - 2019 (10) TMI 525 - AUTHORITY FOR ADVANCE RULING, KARNATAKA, the applicant is having its registered office at New Delhi and it proposes to operate hotels and rent out rooms to the employees of SEZ units.  The services rendered by the hotels are entirely consumed at the same premises.

The applicant applied before the Authority for Advance ruling seeking advance ruling on the following questions-

• Whether accommodation service proposed to be rendered by the applicant to SEZ units are liable to CGST and SGST or IGST?
• If the accommodation service to SEZ is covered under IGST Act, can these be treated as zero rated supplies and the invoices be raised without charging tax after executing LUT under section 16?

The applicant contended the following before the Authority-

• Section 12(3)(b) of the IGST Act provides that the place of supply of service by way of lodging  accommodation of the hotel shall be the location at which the immovable property located.
• Since the supplier being hotel, the location of the supply is also the location of immovable property i.e., hotel.
• The services rendered by hotels are intra-State as location of the supplier and place of supply is in the same State.
• Therefore accommodation services attract CGST and SGST irrespective of the fact whether receiver of service is located in same State or in the State other than the State where hotel is located.
• Section 7(5)(b) of the IGST Act provides that the supplies of goods and services to SEZ will be treated as IGST supplies and proviso to section 8(2)  states that intra-State supply of services shall not include services to SEZ developer or unit.  Accordingly services rendered to SEZ will be treated as inter-State supplies and liable to IGST under section 5(1) of the IGST Act and not under section 9(1) of the CGST Act, though the location of supplier and the place of such service are in the same State.

The applicant was granted personal hearing.  The Authority for Advance Ruling considered the submissions put forth by the applicant.  The Authority analyzed the provisions of section 16(1)(b) of the  IGST Act and Rule 46(1) of CGST Rules.  The Authority found that the reading of the above said provisions jointly together it is clearly evident that the supplies of goods or services or both towards the authorized operations only shall be treated as supplies to SEZ developer/SEZ Unit.

The Authority also relied on the clarifications issued by the Board vide Circular No. 48/22/2018-GST, dated 14.06.2018.  The Authority arrived at a conclusion based on the clarifications issued in the said circular that the present transaction proposed to be made by the applicant where he provides accommodation services in his hotel to SEZ unit would be treated as inter-State supply.  Also the supply of accommodation services provided to SEZ unit would be treated as zero rated supply and this is subject to section 17(5) of the CGST Act.  The Authority gave rulings as detailed below-

• The accommodation service proposed to be rendered by the applicant to SEZ Units are covered under the IGST as it is an Inter-State supply as per section 7(5)(b) of the IGST Act, 2017.
• Since the accommodation service supplied to an SEZ are covered under IGST Act, the same can be treated as zero rated supplies and the invoice can be raised without charging tax after executing LUT under section 16.

IN RE: MRS. POPPY DOROTHY NOEL (M/S. THE POMMELS) - 2019 (10) TMI 619 - AUTHORITY FOR ADVANCE RULING, KARNATAKA the applicant is providing accommodation services to various corporate in Bengaluru including certain SEZ Units.  The applicant is situated outside the SEZ.  The applicant is providing the said services to the SEZ Unit employees for which the SEZ Unit had advised them to raise invoices with IGST at 0% as per section 16 of IGST Act, 2017.  The applicant sought for an advance ruling before the Authority for the Advance Ruling on the question – whether the IGST at 0% is applicable for the invoices raised to the SEZ units, even if the accommodation services were rendered outside the SEZ. 

The Authority verified the application of the applicant and confirmed the services provided by the applicant.  The Authority analyzed the provisions of section 2(93) of the Act which defines the expression ‘recipient of supply of goods or services or both’ and section 7(5)(b) of the Act and also section 12(3)(c) of the Act.

The Authority observed that section 7(5)(b) overrides the provisions of section 12(3)(c) of the IGST Act and hence the transaction of the applicant is an inter-State supply of services, provided that the supply of services made to the SEZ Unit is an authorized operation under the SEZ Act.  The applicant also provided the copy of circular issued by the Development Commissioner, Karnataka SEZ to all developers, co-developers and units of SEZs located in Kerala and Karnataka in which it is stated that the accommodation services are added to the list of services to enable the SEZ units to avail service tax benefits for their authorized operations.  Hence the same would be covered under ‘supply to SEZ Units’ and hence it would be inter-State supply and would be a ‘zero rated supply’