CA BHARAT MATHUR
The article primarily deals with the procurements made by the SEZ units from the DTA suppliers and the tax ability thereon. It contains a summarized procedure for availing supplies at zero rate of tax by the SEZ units and also discusses the refund mechanisms available in the hands of the supplier.
With reference to the supplies made by the DTA suppliers to SEZ units, we have made a combined study of the CGST Act, IGST Act and the CGST Rules and the relevant notifications / circulars issued in this context by the department. On the basis of the same we have arrived at the following view: –
1. Supply of goods and services to SEZ by DTA without IGST payments
a) Furnishing of bond / LUT by the supplier for making zero rated supplies
b) LUT can be furnished by suppliers holding a status holder certificate OR receiving 10% of their export payments in convertible foreign exchange (subject to in excess of INR 1 crore for the previous financial year)
c) Bond can be executed by furnishing a Bank guarantee of maximum15% of the tax involved
d) Export of goods within 3 months from the date of issue of invoice
e) In case of services, the supplier should receive payment in convertible foreign exchange within one year from the date of invoice (Rule 96A)
2. Supply of goods and services to SEZ by DTA with IGST payments
a) Supplies to be made by making IGST payments / utilizing ITC by the supplier
b) The GST refund provisions clearly state that in case the refund claim is filed by the supplier, the SEZ unit is neither entitled to avail input tax credit of such tax charged nor entitled to refund of such IGST payments
c) Refund for such IGST payments can be claimed by the supplier of goods / services subject to a declaration by the SEZ unit that the unit has not availed the ITC of the tax paid
d) The Law also states that the supplier claiming such refund of IGST should declare that the tax incidence has not been passed on to the SEZ unit
e) Therefore, for all practical purposes, in case the supplier wishes to avail refund, the IGST amount should not be recovered / collected by the DTA supplier from the SEZ unit. The payments of tax should be made by the supplier from its own account (either in cash or by utilization of ITC) and refund should be claimed thereafter.
f) However, if the supplier passes on the tax incidence to the SEZ unit by charging IGST in the invoice, the SEZ unit can avail ITC of the same. The unit can avail refund of such ITC against exports by furnishing a bond / LUT in the format prescribed in Form RFD 11. Although there is no specific mechanism for a SEZ unit to avail the refund of unutilised ITC, it is our view that the same should be allowed to the unit by applying for a bond / LUT.
Our opinion is based upon the position of Law as on date and is subject to change in the light of any notifications issued under the GST Act / amendments in the SEZ Act in this context.
The author is a practicing chartered accountant and can be reached at email@example.com.