Supplies to SEZ Units – no restrictions for exemption under GST : 04-08-2017

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

IN what could be seen as a major relief to SEZ Developers and SEZ Units, the restrictions associated with exemptions that were prevalent under the service tax law are no longer there. As we know, the exemption from the levy of service tax, on services rendered to SEZ Units and SEZ Developers was governed by Notification No, 12/2013-ST dated July 1, 2013 subject, interalia , to the condition that the SEZ Developer or the SEZ Unit furnished a declaration in Form A-1, duly approved by the Specified Officer of the SEZ which, on submission, was approved by the jurisdictional Asst /Deputy Commissioner of Central Excise, in Form A-2. One fundamental requirement for the ab-initio exemption was that, the specified services should be used exclusively for the authorised operations of the SEZ Developer or the SEZ Unit.

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In fact, it used to be a procedural nightmare for SEZ Developers and SEZ Units to obtain the approval for the ab-initio exemption, in Form A-2, as in many cases, the Service Tax Department used to sit in judgement on granting approval and used to reject the request for the exemption, on the basis that the input services were not directly related to the output service of the SEZ Unit or that, these services were not rendered in the SEZ area.

With the advent of the GST regime, Notification No. 12/2013-ST dated July 1, 2013 will have no applicability. In the absence of a similar notification under GST, it would seem that, the exemption from levy of tax under GST, in respect of zero rated supplies to SEZ Developers and SEZ Units is available, sans any approval from the Department and without the need for these services to be rendered inside the SEZ area.

Thus, a SEZ Unit would be entitled to ask its suppliers to desist from levying tax under GST, in respect of supplies such as accommodation services in a Hotel outside the SEZ area for stay of the SEZ Unit’s visiting customers, supply of food by the Hotel in respect of a party hosted by the SEZ Unit for its employees, etc. It would not have been possible for the SEZ Unit to obtain approval from the Service Tax Department in Form A-2 for these supplies, under the service tax law. Thus, one can see that, SEZ Developers and SEZ Units would significantly gain under the GST regime, as the exemption that is made available to them would seemingly cover allinward supplies, irrespective of whether or not such supplies are linked to their authorized operations. So long as the supplies are effected to the SEZ Developer and SEZ Units, the ab-initio exemption from levy of tax under GST cannot be denied, in my view, in the absence of a notification similar to Notification No. 12/2013, referred to above.

Of course…..the registered person who effects taxable supplies to SEZ Developers and SEZ Units would be required to execute the requisite bond or LUT, in terms of Notification No. 16/2017-CT read with Circular No. 4/4/2017, both dated 7-7-2017.

Be that as it may….registered taxable persons who effect supplies to SEZ Developers and SEZ Units would, however, be advised that they could face issues, if they claim refund of the ITC attributable to the zero rated supplies effected to the SEZ Developer or the SEZ Unit.

Rule 89 of the CGST Rules, 2017 is reproduced below…

Note : This Article was carried on by website on 4th Aug 2017

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