In a significant development for Special Economic Zones (SEZs) in India, the Ministry of Commerce & Industry, Department of Commerce, SEZ Division, has issued a crucial clarification regarding the establishment of employee welfare facilities within SEZ units. This clarification addresses concerns related to the applicability of Goods and Services Tax (GST) zero-rating benefits on lease rental services provided by developers to SEZ units. This article explores the details of the clarification and its implications for SEZ stakeholders.
Understanding Instruction No. 95
Instruction No. 95, dated June 11, 2019, allowed SEZ units to set up facilities such as cafeterias, crèches, gymnasiums, and similar amenities exclusively for their employees. However, it came with a crucial condition: SEZ units engaging in the creation and operation of these facilities would not be eligible for exemptions, drawbacks, concessions, or other benefits available under Section 7 or Section 26 of the SEZ Act.
The Challenge: GST Zero-Rating Benefit
Recently, the Department of Commerce received several representations from SEZ stakeholders, highlighting an issue that was causing concern. Specified Officers were issuing notices that seemed to curtail the GST zero-rating benefit on lease rental services provided by developers to SEZ units, particularly on the portion of space used for creating these employee welfare facilities.
Clarification for Clarity
To address this issue and ensure uniform interpretation and application of Instruction No. 95, the Department of Commerce conducted a thorough examination in consultation with the Department of Revenue. The resulting clarification is intended to provide clarity on the matter.
Key Points of the Clarification
Here are the key points highlighted in the clarification issued by the Department of Commerce:
i. No Denial of Zero Rating Benefit: The clarification unequivocally states that the denial of the zero-rating benefit on lease rental or other charges collected by developers from SEZ units was never the intention of Instruction No. 95.
ii. Continued Zero Rating Benefit: Importantly, the clarification affirms that the zero-rating benefit for GST continues to be available for lease rental or other charges collected by developers from SEZ units for the space utilized in creating employee welfare facilities exclusively for the employees of SEZ units.
Implications for SEZ Stakeholders
This clarification holds several significant implications for SEZ stakeholders:
i. Relief for SEZ Units: SEZ units can now breathe a sigh of relief as the GST zero-rating benefit for lease rental services remains intact. This ensures that SEZ units can continue to access this financial advantage without interruption.
ii. Developer-SEZ Unit Relations: The relationship between developers and SEZ units is crucial in SEZ operations. This clarification provides greater clarity and certainty regarding the financial aspects of these partnerships.
iii. Encouraging Employee Welfare Facilities: The clarification encourages SEZ units to establish and maintain employee welfare facilities, fostering a conducive work environment and enhancing the attractiveness of SEZs for businesses and their employees.
iv. Compliance and Documentation: SEZ units and developers must ensure that they maintain proper documentation and adhere to relevant regulations to avail themselves of the zero-rating benefit on lease rental services.
The Ministry of Commerce & Industry’s recent clarification regarding employee welfare facilities in SEZ units and the GST zero-rating benefit on lease rental services is a welcome development for the SEZ community. It removes uncertainty and reinforces the commitment to promoting SEZs as attractive destinations for businesses.
Government of India
Ministry of Commerce & Industry
Department of Commerce
Vanijya Bhawan, New Delhi
No. K-43013(13)/1/2022-SEZ Dated the 3rd October, 2023
All Development Commissioner,
Special Economic Zones
Subject: Clarification on Instruction no. 95 – allowing SEZ unit to set up cafeteria, crèche, gymnasium and similar facilities — reg.
I am directed to refer to the Instruction no. 95 dated 11.06.2019 issued by this department for allowing SEZ units to set up cafeteria, crèche, gymnasium and similar facilities in the premises of a unit for the exclusive use of such units under the proviso to Rule 11(5) of the SEZ Rules, 2006 subject to the condition that the unit shall not be eligible for any exemptions, drawbacks, concessions or any other benefits available under Section 7 or Section 26 of the SEZ Act for creating or operating such facilities.
2. The Department of Commerce received several representations stating that the Specified Officers are issuing notices for curtailing GST zero-rating benefit on lease rental services provided by developer to SEZ units on such portion of space which are utilised for creating such employee welfare facilities.
3. The issue has been examined in consultation with Department of Revenue and for the sake of clarity and uniform application of Instruction no. 95, it is hereby clarified that denial of benefits of zero rating on lease / other charges collected by the Developer from the units was never the intention of the said Instruction. Accordingly, the zero rating benefit continues to be available for lease rental / other charges collected by Developer from units for the space utilised for creation of employee welfare facilities exclusively for the employees of SEZ units.
4. This issues with the approval of the Competent Authority.
(Sumit Kumar Sac an)
Under Secretary to the Govt. of India
Copy for information to
(i) Principal Commissioner, GST PW
(ii) DG, DGEP
(iii) DG, EPCES