Article explains Interplay between SEZ Act and GST Act in respect of DTA Procurements, Background about Service procurements eligible for IGST Exemption, Introduction of Online functionality of DTA service procurement Form (DSPF), Applicability of DSPF, Periodicity of DSPF, Key Feature of this DSPF Form, Approval of DSPF, Email Alerts on approval of transaction and Practical challenges faced by unit at the filing of DSPF.

Interplay between SEZ Act and GST Act in respect of DTA Procurements

As per the provisions of section 26 of SEZ Act, 2005, The SEZ unit shall be exempted from any duties of any law for time in force, on Goods brought/Service procured from DTA to a SEZ to carry out on the authorized operations by SEZ unit or Developer.

Section 16 of IGST law, 2017 has been amended through Union Budget 2021, to restrict the scope of zero-rated supply under GST to only those supply of Goods or services or both for AUTHORISED OPERATIONS to SEZ unit. Relevant extract of section 16(1)(b) of IGST act is reproduced as under:

zero rated supply” means any of the following supplies of goods or services or both, namely:––

(b) supply of goods or services or both for authorized operations to a Special Economic Zone developer or a Special Economic Zone unit.

The words for Authorised operations in section 16(1)(b) ensure that only supplies made for Authorised operations will now be treated as zero-rated supplies.

The significance of authorized operations derives from the Special Economic Zones Act, 2005 (SEZ act). Authorised operations are Authorised by the Board of Approval, which allows the developer to conduct operations authorized by the government. The development commissioner has to grant a letter of approval setting out every operation that the SEZ Unit may undertake.

Attention is also drawn to Rule 89 of CGST Rules, 2017, as per which a supplier supplying goods and services to SEZ for Authorised operations as endorsed by the specified officer of the Zone, is supposed to file a claim of refund. However, Section 16 did not mention ‘Authorized operations. Thus, the amendment to section 16 of IGST Act, 2017 provide backing to the Rules. The relevant extract of rule 89 is reproduced as under:

Provided further that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the –

(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorized operations, as endorsed by the specified officer of the Zone;

(b) supplier of services along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone:

Background about Service procurements eligible for IGST Exemption

Given the above background, it becomes important for us to understand the default list services which are exempted from IGST if the same are used for authorized operations.

Currently 67 list of services are approved list of services which are permitted by all Unit approval committees(UAC) as default list of services which are eligible for upfront IGST exemption if the said services are used for “Authorised operations”

Consequent to implementation of GST Act, some State Government are not extending the benefits of IGST exemption for default services, Since SEZs are exempt from IGST and the above matter was placed before 80th Board of Approval (BoA) meeting held on 17th November 2017 The BoA, after deliberations, approved the reiteration of the default list of 67 list of services to be used for the purpose of providing upfront IGST exemption.

In respect of Goods for which mechanism is prescribed in rule 30 of SEZ rules, wherein an endorsement shall be given by the authorized officer that the goods have been admitted in full into SEZ and only those goods are eligible for zero-rated exemption.

Data Service procurement Form (DSPF) - SEZ Compliance for Service exemptions

However, Service used by SEZ units for Authorised officers are intangible and it becomes difficult for authorized officer to provide following confirmations:

  • The services procured by SEZ unit are forming part of 67 default list of services; and
  • The services are used for authorized operations of the SEZ unit

As a result of which the industry faced serious problems in obtaining endorsement as required in rule 89 for the purpose of filing refund application for supplies made to SEZ and also it was an operational challenge for SEZ unit/ Development commissioner office to have control over the services and quantum of services on which IGST exemption was claimed by SEZ units registered in their Zone.

Introduction of Online functionality of DTA service procurement Form (DSPF)

Given the above background in respect of the need for a system in place for facilitating “Endorsement for Service invoices”. The SEZ online portal introduced DSPF solely for the purpose to solve the problem of getting the endorsement from authorized or specified officer for services procured by SEZ unit/ developer.

A new Module to record and submit details of all Invoices pertaining to Service’s availed by SEZ Units / Developers from DTA Suppliers as “Zero Rated Supply for Authorised Operations” is being introduced and is called “DTA Service’s Procurement Form (DSPF)”

SEZ Units / Developers / Co-developers will be able to submit details of service invoices for services availed from DTA during a month. Details of multiple invoices issued by multiple different DTA suppliers during a month can be uploaded in a single transaction and submitted to DC Office for review and endorsement.

Applicability of DSPF

  • SEZ online system through Notice dated 5th Sep 2019 which directs for implementation of the above DSPF form wherein its specified that “Details of all service procurements online through this form” may be implemented as mandatory process for service procurement  from Oct’2019.
  • The  notice also specified the approval Hierarchy  in which it has specified that DSPF can be approved by Authorized officer or verified by Authorized officer and referred to Specified officer for approval;

Periodicity of DSPF

  • Neither SEZ Act or SEZ rules prescribes the due date or periodicity in which the DSPF is required to be furnished by SEZ unit. However, the Macro is enabled for SEZ units to file DSPF on Monthly basis.

Key Feature of this DSPF Form

  • Multiple invoices issued by multiple/ different DTA suppliers during a month can be uploaded in a single go and submitted to DC Office for review and endorsement.
  • Entire process of uploading DSPF, Approval/Endorsement by SEZ officers is online including the acknowledgement to DTA that the services provided by SEZ unit is approved is sent to registered mail ID of DTA service provider.
  • Excel template has been provided to fill the necessary details and has to be attached with DSPF form. Important Mandatory details are captured below for your reference:
  • Details of Invoices (Type/Date/Number/Amount)
  • Service Accounting Code(SAC) has to be selected from dropdown menu and service description will come automatically
  • DTA Supplier Email-ID
  • SEZ needs to indicate whether supply is under bond/ Letter of Undertaking (LUT) or with payment of IGST
  • In case of without payment option – Bond/ LUT details need to be captured.
  • Approved list of services has to be selected from the dropdown menu (66 approved list of services). Recently approved Management Consultancy Service’s is not listed in dropdown menu.
  • If a particular service is specifically approved by UAC as approved service for exemption, the said service description can also be selected under the description as” Any other services as approved by DC offices”.

Approval of DSPF 

  • After submission of DSPF , it will be forwarded to Authorised officer(AO) for review and approval. AO can either approve the form (or) refer to specified officer(SO)for review and approval.
  • Based on the practical experience. I have noted that most of the DSPF approval is provided by Authorised officer and rarely the same is referred to specified officer.
  • It is interesting to note that 2nd proviso to rule 89(1) of CGST rules 2017 explicitly mentions that the endorsement shall be given by “SPECIFIED OFFICER”. The relevant extract is reproduced as under:

Rule 89(1)(b) supplier of services along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone:

  • As a result of above, we have experienced that department has rejected the refund application of the applicant for supplies made to SEZ on the ground that the endorsement has been given by “Authorised officer” and not by “Specified officer”.
  • The relevant definition of Authorised Officer (AO) & Specified Officer (SO) is reproduced as under for ease of reference:

“Authorised Officer” means an Inspector or Preventive Officer, or Appraiser or Superintendent of Customs posted in the Special Economic Zone and authorized by the Specified Officer to discharge any of his functions under these rule.

“Specified Officer” in relation to a Special Economic Zone means Joint or Deputy or Assistant Commissioner of Customs for the time being posted in the Special Economic Zone;

The DSPF Module provides either of them can endorse the said form but GST law mandates endorsement by SO for which clarification is required to be issued to avoid unnecessary litigation.

Email Alerts on approval of transaction

  • When transaction is approved by DC office, email indicating approval will be sent to Entity Approver. An email will also be sent to DTA Supplier. Email will provide the confirmation of services procured by DTA and invoice information applicable to DTA Supplier.
  • Email also contains attachment DSPF form along with declaration which provides as under:

“It is declared, herewith that our SEZ entity (Name of SEZ) has availed above detailed services from GST registered dealers for our Authorised operation as per our LOA. The Services are eligible to be availed by us as Zero-rated services under GST Law and Procedure. Our unit will not be claiming any IGST benefit against these invoices. GST dealers (Service Provider) is eligible to claim IGST benefit for theses invoices. We would maintain necessary records for services availed invoices and payments made so as to make it available for review by SEZ/ GST authorities. We also authorize, SEZ online system to release an abstract of the endorsement of the invoices to the concerned GST dealer (Service Provider) as per Email Id provided by us”

Practical challenges faced by unit at the filing of DSPF

  • Intimation of all the suppliers by SEZ unit about the aforesaid DSPF and populating LUT number for each of the supplier in Vendor master for each of the FY is challenging and time consuming as LUT number of DTA supplier is mandatory to be obtained for DSPF.
  • It has been noticed that few of the AO has been insisting SEZ units/Developers in submission of physical copies of all the service invoices for which the endorsement is proposed in DSPF form. 
  • Approval by AO instead of SO as required by GST law is causing undue hardship and rejection of refund application filed by DTA service providers.

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Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.

The relevant SEZ online updates and the Excel macro for uploading DSPF is attached for reference of readers.

Author can be Reached @ [email protected]; Mobile : 9500144702

Author Bio

Qualification: CA in Practice
Company: S.A.A.A.S & CO LLP
Location: Chennai, Tamil Nadu, India
Member Since: 22 Jan 2022 | Total Posts: 1
Experienced with demonstrated history of working in management consulting industry. Skilled in handling process and risk based Internal audits and similar management Audits for various sectors like Construction, Auto, Digital transformation services Etc and currently experienced in GST, FTP & re View Full Profile

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2 Comments

  1. Urvi Sonchhatra says:

    Truly informative post Shravan!! It is evident from a reading of this that you have practically worked a lot on this aspect. Thank you for sharing your experience with the larger audience:)

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