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,––
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
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:––
(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.
In case of RCM notified services, SEZ has to pay tax under Reverse charge.