SEZ Act 2005 vis-à-vis GST Act 2017

1. Notification 18/2017 – of IGST rates – exempts services imported by a unit or a developer in the Special Economic Zone for authorized 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). No IGST on the import of services by the SEZ unit or developer.

2. Notification 64/2017 – Customs – exempts all goods imported by a unit or a developer in the Special Economic Zone for authorized operations, from the whole of the integrated tax leviable thereon under sub-section (7) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) read with section 5 of the Integrated Goods and Service Tax Act, 2017 (13 of 2017). Since the tax on goods import is liable as per Customs, the exemption is also provided through customs only. No IGST on the import of goods by SEZ unit or developer.

3. Export under SEZ act includes–

– Taking goods or services out of India from SEZ – via land, sea or air by any other mode

– Supplying goods or providing services from DTA to a SEZ unit or developer

– Supplying goods or services from one SEZ unit to another SEZ unit, within same SEZ or different SEZ

Export under GST act, means taking goods out of India to a place outside India.

4. Import under SEZ act includes –

• Bringing goods or services from a place outside India to SEZ unit or developer
• Bringing goods or services by SEZ unit or developer from another unit or developer of same or different SEZ

Imports under GST act, means bringing goods into India from a place outside India.

5. SEZ is Outside India ? – Answer is No

Gujarat High Court, in case of Essar Steel Ltd. v. UOI has decided that, SEZ in no stretch of imagination be considered as a place outside India. The Hon. High court has given explanation to section 53. Section 53 of SEZ Act, 2005 explains that SEZ shall be treated as territory outside the customs territory of India. The customs territory can’t be equated with the Indian territory. If SEZ is interpreted to be outside India, such interpretation will lead to the ambiguity. SEZ will become out of the ambit of most of the laws because the laws in India, extends to the whole of India. If this stand is considered, most of the section of SEZ Act will become redundant and unworkable. – Hence the SEZ can’t be considered outside India.

Section 51 of SEZ Act, 2005 – Provision of the act shall have effect notwithstanding anything inconsistent therewith contained in any other law for time being in force. – Non-obstante clause.

Explanation of non-obstante clause: When provisions of both the enactment are applicable the provisions of the enactment with non-obstante clause will prevail over the other.

In SEZ Law, the movement of goods from DTA to SEZ is considered as export and such export is not liable to any kind of export duty. In Customs law, the export duty is applicable on the movement of goods from India to a place outside India. And it does not contemplate the payment of duty on the movement of goods from DTA to SEZ.

6. Question: Whether the supplies made by SEZ to DTA will be treated as export and not be liable to IGST or the supplies will be considered as normal supplies and liable to IGST at the normal rate of tax.

As per section 30 of SEZ Act, 2005 – Any goods removed from a SEZ to DTA shall be chargeable to duties of the customs (including anti-dumping, countervailing and safeguard duties). This means that supply of goods will be liable to customs (BCD and also IGST). Duties of the customs and tariff valuation for goods imported will be same for the transfers from SEZ to DTA. Nothing in this section is mentioned about the services provided by SEZ to DTA.

Moreover such supplies can’t be considered as imports for the DTA recipient, because definition of import under GST provides to bring goods from outside India into India. As already discussed the SEZ is not to be considered outside India, the supplies from SEZ can’t be termed as imports and DTA recipient will not be liable to tax on such supplies in form of customs.

7. Special Economic Zones in GST are not mentioned anywhere in CGST act. The reference to SEZs are made in Integrated GST act.

1. As per section 7 – Supply of goods or services to SEZ developer or unit or by SEZ developer or unit shall be treated as supplies in course of inter-State trade.

2. As per section 8 – Supply of goods or services to or by SEZ unit or developer will not be considered as intra- State supplies.

This provision makes sure that all the supplies made by SEZ or supplies made to SEZ will be considered as inter-State supplies and will be liable to only IGST. Reliance in Jamnagar has both SEZ and DTA operations. SEZ and DTA are both located in Gujarat. As per registration requirements, SEZ and other operation in a state must take different registration. Therefore the supplies by the SEZ to DTA or DTA to SEZ will be considered as inter-State supplies even when they are in state of Gujarat.

 1. As per section 16 – supplies of goods or services to a SEZ developer or SEZ unit is to be treated as zero-rated supplies.

2. As per section 16(3) – registered person making supplies to SEZ unit or SEZ developer under section 16 is eligible for the refund claim –

• Supply of goods or services under bond/LUT – without payment of tax and claim refund of unutilized input tax credit
• Supply of goods or services on payment of IGST and claiming the refund of such IGST.

8. Special Economic Zones in Rules under GST Act,2017

1. As per Rule 8 of CGST rules, 2017 – Provided that a person having a unit(s) in a Special Economic Zone or being a Special Economic Zone developer shall make a separate application for registration as a business vertical distinct from his other units located outside the Special Economic Zone.

2. As per Rule 89 of CGST rules, 2017 – Provides for who will file application for refund in case of supplies made to the SEZ unit or developer.

9. Procedure for claim of refund for supplies under bond/LUT – Rule 96A

1. Any registered person availing this option, prior to export, shall furnish a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner,

2. This bond or LUT bound him to pay the tax due along with the specified interest within a period of —

• fifteen days after the expiry of three months from the date of issue of the invoice for export, if the goods are not exported out of India; or
• fifteen days after the expiry of one year, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.

3. he details of the export invoices contained in FORM GSTR-1 furnished on the common portal shall be electronically transmitted to the system designated by Customs and a confirmation that the goods covered by the said invoices have been exported out of India shall be electronically transmitted to the common portal from the said system.

4. where the goods are not exported within the time specified in sub-rule (1) and the registered person fails to pay the amount mentioned in the said sub-rule, the export as allowed under bond or Letter of Undertaking shall be withdrawn forthwith and the said amount shall be recovered from the registered person in accordance with the provisions of section 79.

5. the export as allowed under bond or Letter of Undertaking withdrawn in terms of sub rule(3) shall be restored immediately when the registered person pays the amount due.