As per Section 2 (i) the definition of DTA refers as “the whole of India but does not include the area of the special economic zones”.
Under GST the supply of goods or services or both to SEZ are treated as zero rated supplies.
The below mentions the relevant provisions of zero rated supplies as per Section 16 (1) of the IGST Act, 2017 which states as:
Zero rated supply means any of the following supplies of goods or services or both, namely:
a) export of goods or services or both; or
b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
As per provision of section 16 (2) of IGST Act, Input Tax Credit is available for making zero rated supplies.
Under GST, there are two options available on supply of goods or services to SEZ:
Under this option there will be no tax payment on the Supply to SEZ and Invoice shall carry a declaration ‘SUPPLY MEANT FOR SEZ/SEZ DEVELOPER UNDER BOND WITHOUT PAYMENT
OF INTEGRATED TAX. This option is best option where supplier is able to utilize Input Credit against other domestic supply. Under this option supplier can supply goods or services by executing a Bond hence Supplier is not required to pay IGST and claim subsequent refund. For this purpose Indemnity Bond will be executed in the specified format GST RFD-11 on non-judicial stamp paper between the Supplier of SEZ and the Government through the President of India. Supplier need not to execute a bond for each supply to SEZ, rather Bond will be running bond i.e. Bond once executed will be valid for period of 12 months.
For, easy compliance and procedure, Bond will be accepted by the Jurisdictional Deputy or Assistant Commissioner. Along with bond, a Bank Guarantee is to be furnished as a security under the Bond. The Jurisdictional Officer may decide the amount of Security to be kept as Bank Guarantee depending upon track record of the Supplier. As per direction in any case the B.G. should normally not exceed 15% of the bond amount. When there is breach or failure in performance as per bond executed, the Government will invoke the B.G. to recover the loss or damage to the revenue. As on date, the module for furnishing GST RFD-11 is not available on the GST Portal, so the form is to be furnished manually to the Jurisdictional Deputy/Assistant Commissioner.
Supply of goods or services to SEZ unit can also be done with payment of IGST. When the supplier delivers the supply and makes the IGST payment, the supplier, on top of the invoice clearly mentioned that ‘SUPPLY MEANT FOR SEZ UNIT / SEZ DEVELOPER WITH PAYMENT OF INTEGRATED TAX’.
As per provisions of section 16 (3) of the IGST Act, suppliers who are not able to execute LUT for any reason could explore the option of charging IGST. Hence, the suppliers can avail refund for such amount charged as IGST. Further, if the suppliers unable to claim the IGST refund, the supplier can request the SEZ unit to claim the refund of IGST charged.
Under GST Law only for the purpose of levying GST, SEZ Units are not to be considered as a part of India which means:
1. IGST Exemption:
Any supply to SEZ Unit has been made exempt vide Notification No. 64/2017 – Customs dated 5th July, 2017.
2. Import:
Any supply from SEZ Unit to DTA(Domestic Tariff Area) shall be treated as Imports and would be taxable under Reverse Charge Basis at the end of the recipient. Rest other thing it will be considered as part of India.
Therefore, suppliers of goods or services or both to any recipient in the SEZ can avail the following:
Make supply under bond or LUT without payment of IGST and claim credit of ITC; or
Make supply on payment of IGST and claim refund of taxes paid.
Application for refund can be filed for supplies to a Special Economic Zone unit or a Special Economic Zone developer by:
Supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
Supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone.
To claim refund on supply to SEZ, the following documents and information must be submitted:
Proof of receipt of goods or services as demonstrated by the specified officer of the SEZ.
A statement containing the number and date of invoices, the evidence regarding the endorsement SEZ Officer and the details of payment.
A declaration to the effect that the Special Economic Zone unit or the Special Economic Zone developer has not availed the input tax credit of the tax paid by the supplier of goods or services.
Treatment of sales by SEZ is quite different from sales to SEZ. Under GST, an SEZ unit can sell their goods and service with or without the cover of Bill of Entry, which, like any other purchase, can be subject to Reverse Charge Mechanism (RCM).
In cases wherein goods are supplied with Bill of Entry, such transaction shall bear no liabilities for the SEZ unit, however, for the buyer (Regular Taxpayer) it will be treated as imports from SEZ.
In cases wherein the goods and services are sold without Bill of Entry, then such transaction shall be treated as normal sales and purchase for SEZ and Regular Taxpayer, respectively.