GST Implications on Warehousing and Allied Services provided by Free Trade Warehousing Zone to Foreign Service Recipient
A. Introduction:
GST implications on warehousing and allied services provided by Free Trade Warehousing Zone (FTWZ) units to foreign recipients have become increasingly important in cross‑border supply‑chain design. The coming together of SEZ law, customs law and GST zero‑rating provisions allows FTWZ‑based service providers to offer globally competitive, tax‑efficient solutions for international principals, provided the structure is carefully aligned with statutory conditions.
B. FTWZs as a logistics tax hub
> FTWZs are conceived as specialized enclaves within the broader SEZ framework to function as international hubs for storage, trading and distribution. Their legal character as a category of SEZ brings them within the “deemed foreign territory” fiction under the SEZ Act and the overriding clause in Section 51, thereby insulating authorized operations from conflicting domestic tax provisions.
> This positioning makes FTWZs particularly attractive for foreign entities seeking to maintain regional inventory without setting up a taxable presence in India.
> From a GST perspective, the IGST Act adopts the SEZ definition from the SEZ Act, while Section 16 extends zero‑rating to exports of services and supplies to SEZ units. Read with Schedule III of the CGST Act, which treats specified transactions in goods in SEZ/FTWZ as neither supply of goods nor supply of services, this architecture enables a warehousing‑cum‑trading model where duty and GST incidence is deferred until the point of DTA clearance, while exports remain duty‑
C.The ABC–XYZ FTWZ model
> Consider an SEZ unit, M/s ABC Pvt. Ltd., operating from Kandla FTWZ and providing warehousing, logistics and ancillary services in respect of goods owned by M/s XYZ LLC, a US‑incorporated entity with no establishment or GST registration in India.
> ABC holds a Letter of Approval for authorised FTWZ operations and contracts directly with XYZ LLC to undertake storage, inventory management, labelling, repacking, handling and customs coordination for goods brought into the FTWZ under a warehousing Bill of Entry.
> The goods remain under customs control within ABC’s FTWZ premises and may either be re‑exported to third countries or sold by XYZ LLC to domestic tariff area (DTA) customers, with customs duty and IGST discharged only at the stage of ex‑bond DTA clearance.
> ABC raises invoices on XYZ LLC in convertible foreign currency and realizes consideration in foreign exchange, while XYZ LLC maintains no fixed establishment in India and relies entirely on ABC’s infrastructure for its regional logistics requirements.
D.Export of services and zero‑rating
> The central question is whether ABC’s services to XYZ LLC qualify as “export of services” under Section 2(6) of the IGST Act, thereby enjoying zero‑rated status under Section 16.
> Analyzed sequentially, the five statutory conditions are satisfied in such structures:
(i) the supplier is located in India (ABC as an Indian‑registered FTWZ unit),
(ii) the recipient is located outside India (XYZ LLC in the USA),
(iii) the place of supply under Section 13
(iv) consideration is received in convertible foreign exchange, and
(v) the supplier and recipient are not merely establishments of a distinct person.[1]
> Once these conditions are met, ABC may supply under LUT/bond without charging IGST and seek refund of accumulated input tax credit on inputs and input services, subject to the standard Section 17(5) exclusions, or alternatively pay IGST and claim refund of the tax paid. In practice, the LUT route is commercially preferable because it prevents working‑capital blockage and allows ABC to treat GST as a pure pass‑through, enhancing price competitiveness for the foreign principal.[1]
E. Schedule III and trading in FTWZ
> On the goods side, FTWZ‑centric models typically involve multiple transfers of title while goods are warehoused, often between foreign entities or between a foreign principal and Indian customers, before ex‑bond clearance.
> The inclusion of a specific entry in Schedule III to the CGST Act, covering transfer of title in goods stored in a customs‑bonded or SEZ/FTWZ environment prior to home consumption or export, ensures that such intra‑FTWZ trades are treated as activities which are neither supply of goods nor supply of services.
> This treatment is conceptually aligned with customs warehousing principles, under which import duty incidence is triggered only when goods are cleared for home consumption.
> It prevents duplicative taxation on mere book transfers within a bonded ecosystem and reflects the GST Council’s stated intent of avoiding double levy on the same transaction chain.
> For XYZ LLC, this enables a flexible trading platform where multiple on‑paper sales may be executed without immediate Indian tax exposure, subject to eventual duty/GST at DTA clearance.
F. Judicial support for SEZ/FTWZ exports
1. In Broekman Logistics India Pvt. Ltd. [2020(2) TMI 964 – CESTAT CHENNAI], the CESTAT, Chennai, examined warehousing and logistics services provided from an SEZ to foreign clients and upheld the position that such services constituted exports, insulated by the overriding effect of the SEZ Act.
The decision stressed that general service tax rules, including place‑of‑provision provisions, cannot be deployed to defeat SEZ exemptions when consideration is received in foreign currency from a foreign recipient.
2. Similarly, in Haworth India Private Limited before the Tamil Nadu AAR [2025 (1) TMI 580 – AAR Tamil Nadu], the authority recognized FTWZ premises as bonded facilities and held that multiple transfers of title in warehoused goods squarely fall under paragraph 8(a) of Schedule III, remaining outside the ambit of GST. The ruling highlighted the referential incorporation of customs warehousing concepts into the SEZ Act and the role of Schedule III in preventing double taxation of warehoused goods, thereby validating the legal foundation of FTWZ trading models.
G. Intermediary risk and characterization
> A recurrent revenue challenge in such structures is the attempt to characterise FTWZ units as “intermediaries,” particularly where they provide a suite of services in relation to goods ultimately supplied to Indian customers. If ABC were treated as an intermediary merely arranging or facilitating a supply between XYZ LLC and DTA buyers, the place of supply rules could shift the location of supply back to India, thereby disqualifying the transaction from export status and negating zero‑rating benefits.[1]
> Mitigating this risk requires careful contractual and operational design. The documentation should clearly establish that ABC provides warehousing, logistics and ancillary services on its own account to XYZ LLC, and does not arrange or facilitate a third‑party sale. Control over infrastructure, manpower, risk allocation and direct foreign‑currency billing all support the principal‑to‑principal service character.
> Where these features are demonstrable in fact, there is a strong basis to prove the fact that the transaction is not in the capacity of the intermediary and that ABC’s services remain eligible exports.
H. Policy alignment and business impact
> At a policy level, FTWZ‑based export‑of‑services models align with the constitutional design of GST as a destination‑based tax, embodied in Articles 246A and 269A, by ensuring that GST burden ultimately falls where goods or services are consumed rather than where they transit.
> Zero‑rating of exports and SEZ/FTWZ supplies enables India to act as a logistics and processing hub without imposing unintended tax costs on cross‑border flows, while customs and SEZ frameworks provide complementary duty‑deferment mechanisms.
> For businesses like ABC, this convergence translates into the ability to create robust export‑oriented service platforms that earn foreign exchange, monetize logistics capabilities and unlock ITC refunds, thereby supporting competitive pricing.
> For foreign principals such as XYZ LLC, FTWZ operations provide a single‑hub, tax‑efficient configuration to address both Indian and regional markets, with clear rules on when duty and GST become payable and with legal protection against double taxation on warehoused inventory.
Views expressed are strictly personal and before taking business decisions Expert Advice is recommended.
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