Supplies made to SEZ units and SEZ developers were exempted from payment of duty under the earlier law as deemed exports. Day by day the number of SEZ units and SEZ developers are increasing. So also the domestic business sector supplying goods and service to these units. Hence it is expedient to know the implications of the new GST regime on the SEZs. In this article the implications of GST laws on the SEZ units have been analysed .
SEZ developers / units are required to register under GST
As per section 22(1) of the CGST Act 2017, every supplier is liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. In resepct of special category states, the threshold limit for registration has been fixed at Rs 10 lakhs.
Section 25 (2) of the CGST Act 2017, stipulates that, a person seeking registration under this Act shall be granted a single registration in a State or Union territory, and also that a person having multiple business verticals in a State or Union territory may be granted a separate registration for each business vertical, subject to such conditions as may be prescribed.
Rule 1 of the Final Registration Rules under GST mandates that a person having a unit(s) in a Special Economic Zone or being a Special Economic Zone developer shall make a separate application for registration as a business vertical distinct from his other units located outside the Special Economic Zone.
Thus it is qutie clear from the above provisions that under the GST regime, every unit in the special Economic zone and the SEZ developers have to take separate registration as a separate business verticals in each state, irrespective of the registration of the units located outside the SEZ in that state.
SEZ is a distinct person
According to section 25(5) of the CGST Act 2017, where a person who has obtained registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act. Accordingly since the Act and the Rules framed there under require the SEZ units, SEZ Developers to take separate registration in each state wherever they are located in addition to the registration of the units located outside the SEZ area in that state, the SEZ unit or the SEZ developer and the other units located outside the SEZ area are considered as distinct persons for the purpose of this act.
Treatment of SEZ under GST law
As per Section 7(5)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) supply of goods or services or both to or by a Special Economic Zone Developer or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
Proviso (i) to Sub-section (1) of Section 8 of the IGST Act specifically states that, supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit shall not be treated as an intra state supply.
1. A supplier in the Domestic Tariff area of State of Karnataka, supplying goods or services or both to a unit located in the Karle SEZ of Karnataka such a supply will be treated as inter state supply of goods and services irrespective of the fact that both the supplier or goods or services and the recipient of goods or services are located with in the same state.
2. A supplier in SEZ in the State of Tamilnadu supplies goods or services to a DTA unit in Tamilnadu . The supply will be treated as inter-State supply despite the fact that goods did not move inter-State
3. A supplier in SEZ in the State of Kerala supplies goods or services to a SEZ unit in Kerala. The supply will be treated as inter-State supply despite the fact that goods did not move inter-State.
Special Treatment to SEZs under section 16 of the IGST Act.
As per Section 16 of the IGST Act , supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit has been rated as zero rated supply. Suppliers of goods and services to these recipients can avail of one of the following options on their supplies :
a) Make their supplies under bond or Letter of Under Taking without payment of IGST and claim Input Tax Credits; or
b) Make supplies on payment of IGST and claim refund of taxes paid.
Suppliers to SEZ unit or developers under either of the above options will be subjected to such conditions, safeguards and procedure as may be prescribed in this regard.
Except for the above special tretment in the nature of supply and zero rating, the SEZ unit or SEZ developer is subject to all other provisions of the GST laws.
Invoices for supplies by SEZs
No specific format of invoice has been prescribed in the Invoice Rules for the issue of invocie inrespect of the supplies made by the SEZs. Thus Invoice rules applicable to exports will apply to invoices issued by SEZ for export out of India and with suitable modification to supplies to DTA.
Notification of Deemed Exports
Section 147 of the Central Goods and Services Tax Act, 2017 empowers the Government to notify, on the recommendation of the GST Council, certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.
However this benefit has been restricted only on supply of goods and not services. Further, while defining relevant date for the purpose of refund claim of deemed exports explanation 2(b) to section 54 refers to only export of goods. Thus as per section 1476 the status of deemed exports is available only for goods and not for services.
However, section 55(1) empowers the Government to notify class of persons who will be entitled to claim refund of taxes paid on notified supplies of goods or services.
Government has so far not notified any goods under section 147. It is expected that some of the existing deemed exports under FTP may be notified under this section.