The Special Economic Zone commonly known as SEZ. Before discussing the supply by or to SEZ, first let us try to understand what this Special Economic Zone is. The Government of India enacted the Special Economic Zone Act, 2005 to boost exports, wherein special benefits are given to those who set up industries in the designated area of Special Economic Zones.
2. “SEZ” Special Economic Zone as per SEZ Act, 2005, means each Special Economic Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of Section 4 (including Free Trade and Warehousing Zone) and includes existing Special Economic Zone. When developer develops the SEZ Zone and an entrepreneur wishes to set up a unit in the zone, shall make an application to the jurisdiction Development Officer along with the requisite documents such as, details of product which will be manufactured, in case of manufacturing unit, along with manufacturing process, the raw material (inputs) and the input service, etc., after which the Board of Approval will review it and approve the authorized operation, which is known as ‘Letter of Approval'(LOA). Terms and conditions may also be imposed for authorized operations in SEZ. The SEZ unit can import inputs and /or input services without payment of duty and can also procure inputs and input services from the Domestic Tariff Area (DTA). As per the definition DTA means whole of India (including territorial waters and continental shelf) but does not include the area of Special Economic Zone. In simple terms it can be said that whole of India except area of Special Economic Zone is Domestic Tariff Area.
3. As per Section 51 of SEZ Act, the SEZ Act has an overriding effect on any other law for the time being in force. By THE CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016, the Section 246A was inserted which reads as under:-
“2. After article 246 of the Constitution, the following article shall be inserted, namely:-
“246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. …”
3. The SEZ Act, 2005, is enacted under article 246. The article 246A starts with “Notwithstanding anything contained in article 246”, this nullifies the overriding effect of SEZ Act, over GST Act as GST Act is enacted under article 246A of the constitution of India.
4. In order to maintain the special status and benefit extended to the SEZ unit, supplies made to SEZ Unit is treated as’ Zero-Rated Supply’ under section 16 of IGST Act, 2017. The section 7(4) of IGST Act, 2017 reads as under :-
“ (5) Supply of goods or services or both,––
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”
As per the above section 7 (4) of IGST Act,2017 supply to or by SEZ unit or developer, is inter-State trade or commerce. The section 7(4) makes it ample clear that for purpose of GST, SEZ unit is within India and therefore, the supplies shall be treated as ‘inter-State’ supply. Further, in order to remove even the remote possible doubt, the proviso to sub-section 2 of section 8 of IGST Act, clarifies that supply to or by SEZ unit or developer shall not be treated as ‘intra-State’ supply. Therefore, any supply made to a SEZ Unit although within the same state, it shall be treated as ‘inter-State’ supply. Under GST separate registration for DTA unit and SEZ unit is required and both will be treated as distinct person.
Supply of goods and /or services by a Special Economic Zone unit to DTA unit
5. The supply of goods and / or services by a SEZ unit to a unit in DTA shall be treated as inter-state supply and IGST is applicable, moreover, all the procedure under the customs act for import of goods and/or services will be applicable. The valuation of goods or services will be in accordance with the customs act and rules made thereunder. The unit in DTA is required to file bill of entry, however, on authorisation SEZ unit may file bill of entry on behalf of the buyer.
6. If the goods are procured from the DTA unit by SEZ unit are supplied back to DTA unit, as it is, i.e., without undertaking any process then the said goods shall be treated as re-imported goods and all the procedure relating to the re-importation of goods from outside the India will be applicable to such goods. If the goods procured from DTA unit without availing any export benefit by the supplier are supplied back to DTA unit, as it is, and the import duty on such a good is ‘Nil’ then the SEZ unit may be allowed to supply back such goods to DTA unit on the basis of invoice only and filing of bill of entry is not required in this case. (Refer Rule 48 of SEZ Rules, 2006).
Supply of goods and /or services to a Special Economic Zone unit
7. If a person makes supplies to SEZ unit, the benefit of exports is also extended. Similar to exports, supply to SEZ Unit or developer may be supplied under LUT/Bond without payment of tax or with payment of tax and supplier can also claim for refund. It is worth noting here that the supply made to the SEZs is of Zero-rated supply but not exports in terms of Section 11 of IGST Act, as it is not supplied in the region outside India.
8. We will now discuss some important issue for supply to SEZ unit. We have already seen that even if the SEZ unit is in the same state, it is considered inter-state supply. Any person who intends to supply to SEZ unit has to take mandatory GST registration as per Section 24. Registered person can supply to the SEZ unit without payment of tax under L.U. T. (Letter of Undertaking) or Bond/ or with payment of tax. According to the provision of Section 25(1) of CGST Act, 2017, a person having a unit in a Special Economic Zone and another unit outside the SEZ but within India, shall take separate registration for both the units and both shall be treated as a separate person, therefore, if any supply is made to SEZ unit by a DTA unit, even if they are in the same state, the supply shall be treated as inter-state supplies. For example, if a supplier from Gujarat supplies to an SEZ unit located in Gujarat, it shall be treated as inter-state supply.
8. Brief about Letter of Undertaking (L.U.T) / Bond
9.1 Eligibility for L.U.T.:- LUT facility has now been extended to all registered persons, for zero rated supply without payment of IGST tax, except for the person, who has been prosecuted for duty/tax evasion under GST or IGST or the earlier laws such as, Central Excise Act or Customs Act, etc., and the duty/tax amount is more than Rs. 2 crore fifty lakhs.
A registered person eligible for LUT may apply online and ARN is evidence of LUT acceptance by the department. If adverse information is found about the registered person, then LUT will be cancelled and the department can initiate legal action.
9.2 The validity LUT: – LUT will be valid for the financial year.
9.3 Documents required for LUT: Self-Declaration from the Registered Person along with Application that no action of duty/tax evasion has been taken against him and the conditions of LUT have been fulfilled. If the department has any specific information, re-verification can be undertaken.
9.4 Acceptance of LUT:- LUT is the primary requirement for zero rated supply, LUT should be dealt with urgently. It has been made clear that the LUT will be processed within three working days of receipt of self-declaration with the application by the registered person. If no reply is received within three working days from the date of application, the application is deemed to be accepted.
9.5 Bond/Bank Guarantee (Guarantee): Although all registered persons are provided with the facility to supply zero rated supplies under LUT, the bond is required to be furnished by those persons who have been prosecuted for duty/tax evasion and the amount is more than Rs. 2 crore fifty lakhs. In such cases, a bank guarantee of 15% of the bond amount is also required to be furnished.
10. Short brief Bill of Export: –
10.1 Transportation of goods can be made mainly in three ways, first by road, second by sea and third by air. As per the Custom Shipping Bill Regulations, if the goods are transported by road, the Bill of Export has to be filed and the shipping bill is to be filed if transportation is done by sea or air. If supply is made to SEZ unit, as per Rule 30 of SEZ Rules, documents mentioned in IGST shall be executed. Only LUT/ Bonds and invoices are mentioned. But if any export benefits are to be availed or the export obligation is to be fulfilled for the scheme such as advance authorization, DEPB, etc., then a Bill of Export is required to be filed, when the export is made to the neighboring country by road such as Nepal, Bhutan, Bangladesh, etc., the Bill of Export has to be filed.
11. Supply to a Special Economic Zone Developer or a Special Economic Zone Unit without payment of tax under LUT/Bond
11.1 For goods: – The registered person can supply goods to the SEZ unit (unit) / developer without payment of IGST tax under bond/LUT. The main documents are as under: –
(i) Purchase Order issued by the SEZ Unit , if any
(ii) As per Rule 46 CGST Rules, 2017, the heading of invoice shall be “SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”.
(iii) LUT number or the ARN number of the application, shall be incorporated in the invoice.
(iv) Packaging List.
11.2 For service: –
(i) Purchase Order issued the SEZ Unit, if any
(ii) As per Rule 46 of CGST Rules,2017 the heading of Invoice shall be “SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”.
(iii) LUT number or the ARN number of the application, shall be incorporated in the invoice.
# In invoice show the tax amount as “0” .
## In GSTR-1, the details of invoice(s) are to be filled in Table 6B and in GSTR-3B, the details are to be filled in Table 3.1(b).
11.3 The designated officer of the SEZ, shall sign on the invoice in token of verification that the SEZ unit or the developer has received the goods in full and / or has received the service and it is for authorized operation. For the ITC accumulated refund claim can be filed.
12. Supply to Special Economic Zone Developer or Special Economic Zone Unit with payment of tax
12.1 For goods: – A registered person can supply goods to the SEZ unit or to the developer by paying IGST tax. The main documents are as under:-
(i) Purchase Order given by the SEZ Unit, if any
(ii) As per Rule 46 of CGST Rules, 2017, the heading of Invoice shall be “SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS ON PAYMENT OF INTEGRATED TAX”.
(iii) Packaging List.
12.2 For Services: –
(i) Purchase Order issued by the SEZ Unit, if any
(ii) As per Rule 46 of CGST Rules, 2017, the heading of invoice shall be “SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS ON PAYMENT OF INTEGRATED TAX”.
# In invoice show the tax amount as “0” .
## In GSTR-1, the details of invoice(s) are to be filled in Table 6B and in GSTR-3B, the details are to be filled in Table 3.1(b).
12.3 The designated officer of the SEZ, shall sign on the invoice in token of verification that the SEZ unit or the developer has received the goods in full and / or has received the service and it is for authorized operation. For the ITC accumulated refund claim can be filed.
Refund :-
Refund is to be filed online in FORM RFD-01 and documents required to be attached as per Annexure-A & B of Circular No. 125/2019 dated 18th November, 2019 (relevant portion) is as under:-
ANNEXURE-A
List of all statements/declarations/guarantors/certificates and other supporting documents to be uploaded with the refund application
Refund of unused ITC on account of supplies provided to SEZ Unit/SEZ Developer without paying tax
| Statement / Declaration / Guarantee Letter / Certificates which are to be filled online | Additional supporting documents that are to be uploaded |
| Declaration under the Third Proviso (Proviso) of section 54(3) | Copy of GSTR-2A of the relevant period |
| (Statement) Form-5 Rule 89(2)(d) and Rule
Under 89 (2) (e) |
Annexure-B of Invoices (Statement) |
| (Statement) Under Form-5A Rule 89(4) | Self-attested copies of invoices shown in Annexure-B, the details of which do not appear in GSTR-2A of the relevant period. |
| Declaration under Rule 89(2)(f) | under the provision of the second proviso (Proviso) of Rule 89(1) received from the officer directed to the SEZ for the authentic operation of the goods/services |
| Letter of Undertaking in relation to Section 16(2)(c) and Section 42(2) of the | |
| Self-declaration under Rule 89(2)(l) if the claimed amount does not exceed Rs. 2 lakh, otherwise the certificate under Rule 89(2)(m) |
Refund of tax paid on supplies made along with payment of tax to SEZ unit/SEZ developer
| Statement / Declaration / Guarant Letter / Certificates which are to be filled online | Additional supporting documents that are to be uploaded |
| Declaration under the second and third proviso (Proviso) of section 54(3) | under the provision of the second proviso (Proviso) of Rule 89(1) received from the officer directed to the SEZ for the authentic operation of the goods/services |
| Declaration under Rule 89(2)(f) | Self-attested copies of invoices shown in Annexure-B, the details of which do not appear in GSTR-2A of the relevant period. |
| (Statement) Form 4 Rule 89(2)(d) and Rule
Under 89 (2) (e) |
No self-declaration or any action has been taken under sub-rule (1) of Rule 91 of the CGST Rules for obtaining provisional refunds |
| Letter of Undertaking in relation to Section 16(2)(c) and Section 42(2) of the | |
| Self-declaration under Rule 89(2)(l) if the claimed amount does not exceed Rs. 2 lakh, otherwise the certificate under Rule 89(2)(m) |
ANNEXURE-B
Form of submission of invoices with an application for refund of unused ITC (Statement)
| Seq-uence No. | GST-IN of the Su-pplier | Sup-plier’s Name | Details of invoices | Category of input supplies | Ce-ntral Tax | State/ UT Tax | Integ-rated Tax | Cess | Eli-gible for ITC | Amo-unt of eli-gible ITC | |||
| Invo-ice No. | date | price | Input/ Input Servi-ce / Capital Goods | HSN/ SAC | Yes/ No/ Part. | ||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 12 | 13 | 14 | |
Please Note:- This article is for information purpose only, not to be used for any other purpose. Only the important issue has been discussed as the subject is very wide. Do consult an expert near you before taking any decision.
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