The intention of government for providing advantages to SEZ and supplier to SEZ by making such supply as zero-rated has been carried away by some provisions one of which is the RCM in case of supply to SEZ.
The relevant provisions of GST are discussed further:
Reverse charge mechanism – Sec 5(3) of IGST Act
” The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
The govt. has notified specified categories of goods and services where tax shall be paid by the recipient on reverse charge basis. In all such notified services, tax shall be paid by the recipient of services. It also provides that all the provisions of Act shall apply as if he is person liable for paying tax.
Reverse charge mechanism – Sec 5(4) of IGST Act
“The integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
Inter State Supply – Sec 7(5) of IGST Act
” Supply of goods or services or both,––
(a) ——
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) —–
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
Since supply to SEZ is an inter-state supply, every person supplying to SEZ shall get himself registered. However this will increase the burden of compliances for all supplier to SEZ. The provision for RCM liability in case of receipt of goods or services from an unregistered person will not arise in case of SEZ.
Zero rated supply – Sec 16 of IGST Act
(1) “zero rated supply” means any of the following supplies of goods or services or both, namely:––
(a) ——
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:––
Zero rated supply includes supply to SEZ. A registered person making zero-rated supply shall be eligible to claim refund under either of the 2 options.(Pay and get refund or file bond/LUT)
RCM notified services supplied to SEZ – Whether SEZ is liable to pay tax under reverse charge?
It must be noted that the RCM provisions provide that all provisions of Act shall apply as if he is person liable to pay tax. Such person(recipient) is not deemed to be Supplier(making the supply).
Also the refund is eligible only to the person making the zero-rated supply(supplier) and not the person receiving the supply(SEZ).
It is to be noted that neither Sec 5 nor Sec 16 has any overriding clause.
Such anomaly results in SEZ paying the tax under RCM and not eligible to benefit of zero-rated.
Conclusion:
In case of RCM notified services, SEZ has to pay tax under Reverse charge.
Author Bio
Transaction with SEZ is a IGST Transaction. What will be the effect of Notification No. 18/2017-IGST(RATE) dated 05-07-2017?
…. the public interest so to do and on the recommendations of the Council, hereby exempts services imported by a unit or a developer in the Special Economic Zone for authorised
operations, from the whole of the integrated tax leviable thereon under section 5 of the Integrated Goods and Service Tax Act, 2017 (13 of 2017).
We are located in sez. But from July 2017 onwards we are paying RCM for Legal and GTA services. Now trying for refund but the portal don’t have such an option for RCM.
In my opinion, SEZ Units or Developers are not required to pay tax on RCM as supplies to SEZs are treated as Zero Rated.
Under RCM provisions, all provisions of the Act apply to the recipient as if he is the person liable to pay tax on such supplies. Since the Supplies being made are Zero Rated in nature and the SEZ Unit has already filed a LUT, there shall be no requirement to pay tax on supplies on RCM basis.
RCM is not applicable in SEZ related to section 5(4). However notified services under 5(3) are still applicable to SEZ supplies
the rates on which on tax is payable will be a reference to the schedule of rates. The schedule of rates does not contain anything related to zero-rated. the section wording for zero-rating SEZ supplies is subject to supplier filing bond/LUT.
SEZ can take credit of RCM paid tax and utilise for payment of liability om domestic turnover
As per my view, RCM is not applicable in SEZ, because SEZ supplies call inter-sate supply (Export), for inter-state supply IGST tax applicable, so GST registration must require to supplying under IGST in SEZ. If Supplier is Registered under GST then where RCM applicable…
Good analysis Sir
Even if GST is payable under reverse charge, it is payable at the rate at which the supply is taxable. Since supplies to SEZ units/Developers is zero rated, tax applicable on reverse charge is zero and hence no tax needs to be paid. GST returns do not have fields where zero rate can be mentioned for reverse charge. But the forms cannot override the provisions of the Act. The forms should be amended to enable disclosure of supplies received on which reverse charge is applicable at zero rate
Does it mean :
1. SEZ unit can not to take credit of RCM paid tax & claim refund of said tax when supply goods out side India for export. ?