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Everything to Know About GST Implications for Every Transaction by SEZ Units

In this Article, we will discuss about multiple transactions and their GST impact in case of transactions with the SEZ units for authorised operations.


Conclusion of the Transactions and their respective GST Impact (Details are being shared in next section of the Article)


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S.No.

Nature of Transaction

GST Impact in Hand of SEZ Unit

GST Impact in the Hand of Second Party

1.

Import of Service by SEZ Unit from Outside India

GST is Exempt in Hands of SEZ Units (No RCM)

No GST Impact

2.

Import of Goods by SEZ Unit from Outside India

GST is Exempt in Hands of SEZ Units (No IGST Payment on Import)

No GST Impact

3.

Procurement of Goods from DTA (Domestic Taxable Territory)

No GST Impact

Zero Rated Supply in the Hand of Domestic Supplier

4.

Procurement of Service (which falls under forward charge) from DTA

No GST Impact

Zero Rated Supply in the Hand of Domestic Supplier

5.

Procurement of Service (which falls under Reverse charge) from DTA

Zero Rated Supply in the Hand of SEZ Unit (They need to file either Bond or LUT)

No GST Impact

6.

Supply of Goods by SEZ Unit to DTA

All Kind of Custom Duties and IGST need to be paid like Import Duties for clearance from SEZ to DTA. (Either by SEZ unit or DTA)

All Kind of Custom Duties and IGST need to be paid like Import Duties for clearance from SEZ to DTA. (Either by SEZ unit or DTA)

7.

Supply of Service by SEZ Unit to DTA

Taxable as a normal Supply and IGST needs to be paid.

Can Avail ITC as per extant provisions.

Explanations along with Reasoning of above conclusions


Scenario-1: Import of Service by SEZ Unit from Outside India


Generally, RCM is payable in case of Import of Service. However, in case of SEZ Units, the has been exempted vide Notification No.18/2017 (IGST Rate) dated 5th July, 2027.


Scenario-2: Import of Goods by SEZ Unit from Outside India


Generally, IGST needs to be paid at the time of Import, however, in case of SEZ Units, the has been exempted vide Notification No.64/2017-Customs dated 5th July, 2027.


Scenario-3: Procurement of Goods from DTA (Domestic Taxable Territory)


In terms of Section 16(1)(b), it will be considered as Zero Rated Supply. Accordingly, Supplier in Domestic Taxable Territory can either supply it with Payment of IGST and claim refund or supply without payment of IGST under LUT or Bond.


Scenario-4: Procurement of Service (which falls under forward charge) from DTA


In terms of Section 16(1)(b), it will be considered as Zero Rated Supply. Accordingly, Supplier in Domestic Taxable Territory can either supply it with Payment of IGST and claim refund or supply without payment of IGST under LUT or Bond.


Scenario-5: Procurement of Service (which falls under Reverse charge) from DTA


In this case, it has been decided by the Authority for Advance Ruling in the case of M/s Abans Alternative Fund Manager that an SEZ unit, is not required to pay GST under RCM on specified services in accordance with notification No. 10/2017CT(Rate) dated 28.6.2017 (RCM Notification) as amended from time to time, subject to furnishing a LUT or bond as specified in condition (i) of para 1 of notification No. 37/2017-CT.


Key Reasons given by Authority


FAQs on GST,, 3'd edition, dated 75.12.2018, on the question of payment of IGST under RCM, when received by an SEZ unit has clarified as under:


Q 41. Whether SEZ unit or developer needs to pay IGST when it received supplies which are

under reverse charge mechanism?


Ans. All supplies to SEZs are zero rated. However, the suppliers are given two options. In this case, the Supplier i.s not liable to pay GST as the supply is under reverse charge mechanism. The recipient is considered as deemed supplier. Therefore, SEZ, has to pay GST in this case.


However, Tax Research Unit (TRU) on a reference from one Unit in SEZ has clarified that:


"3. Since the intention of the Legislature is not to tax supplies to a unit in SEZ or a SEZ Developer which have been zero rated under clause (b) of section 16(1 ) of the IGST Act, by virtue of deeming provision under section 5(3) of the IGST Act, 2017, levy for procurement of input services specified under notification No. 13/2017-CT(Rale) falls upon the unit in SEZ or the SEZ Developer. It is therefore clarified that a unit in SEZ or the SEZ developer can procure such services, where they are required to pay GST under reverse charge, without payment of integrated tax provided the actual recipient, i.e. unit in SEZ or SEZ developer, furnishes a Letter of Undertaking in place of a bond as specified in condition no. (i) in para I of notification No. 37/2017-CT. The actual recipient of service is the deemed supplier/registered person.for the purpose of fulfilling other conditions in para 1 of the notification ibid including the manner of furnishing of Letter of Undertaking."


Scenario-6: Supply of Goods by SEZ Unit to DTA

In this case, Bill of Entry need to be filed either by SEZ Unit or by the Persons procuring such Goods in Domestic Tariff Area (DTA). While filing Bill of Entry, applicable Custom Duties including IGST need to be paid.


Scenario-7: Supply of Service by SEZ Unit to DTA


As per Section 7(5)(b), it would be considered as Inter-State Supply. Further, no exemption notification has been observed for this. Therefore, in our considered opinion, SEZ Unit need to pay IGST in terms of Section-5 on such supply of service like a normal taxpayer. Further, recipient of such service can avail the ITC subject to the Provisions of Section-16 & 17.



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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.






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