2018 (8) TMI 875 - AAR - GST

Non-alcoholic beverages supply to SEZ units via vending machines not zero-rated

The Authority for Advance Rulings determined that the supply of non-alcoholic beverages and ingredients to SEZ units via coffee vending machines did not ... Zero-rated supply - supply to a Special Economic Zone unit or developer - authorised operations - refund of input tax credit for SEZ supplies - interpretation of the word 'any' in Section 16(1) - Rule 89 - refund conditional on certification for authorised operationsZero-rated supply - supply to a Special Economic Zone unit or developer - authorised operations - Rule 89 - refund conditional on certification for authorised operations - Supply of non-alcoholic beverages or ingredients to SEZ units using coffee vending machines qualifies as zero-rated supply under Section 16 of the IGST Act, 2017. - HELD THAT: - Section 16(1) defines 'zero-rated supply' to include supply to an SEZ developer or unit. The Authority interpreted the statutory phrasing and noted that the occurrence of the word 'any' in the opening sentence of Section 16(1) applies to the listed alternatives and does not by itself expand (b) to mean every conceivable supply to an SEZ. The SEZ scheme and the SEZ Act require units to carry out predefined 'authorised operations', certified by the proper officer, and benefits of SEZ status accrue only for such authorised operations. Rule 89 of the CGST Rules conditions refund applications in respect of supplies to SEZ units on endorsement by the specified officer that the goods or services are for authorised operations. Reading Section 16(1)(b) in the light of the SEZ Act and Rule 89, the Authority held that supplies to SEZ units qualify as zero-rated only where they relate to authorised operations and are certified accordingly. The applicant did not demonstrate that the beverage supplies or ingredients were certified as for authorised operations by the proper officer of the SEZ; accordingly the supplies do not qualify as zero-rated supplies under Section 16(1)(b). [Paras 7, 8, 9]The supply of non-alcoholic beverages or ingredients to SEZ units using coffee vending machines by the applicant does not qualify as zero-rated supply under Section 16 of the IGST Act, 2017, since such supplies were not shown to be for authorised operations certified by the proper officer.Final Conclusion: The Authority rules that the applicant's supplies of beverages/ingredients to SEZ units via vending machines are not zero-rated under Section 16 IGST Act, 2017 because they were not shown to be for 'authorised operations' certified by the proper officer; accordingly refund of input tax credit on that basis is not allowable. Issues involved:1. Whether the supply of non-alcoholic beverages to SEZ units using coffee vending machines qualifies as a zero-rated supply under Section 16 of the IGST Act 2017Rs.Detailed Analysis:The applicant, a company supplying non-alcoholic beverages to SEZ units through coffee vending machines, sought an advance ruling on the issue of whether such supplies could be considered zero-rated under the IGST Act 2017. The applicant contended that all supplies to SEZ, regardless of use for authorized operations, are deemed zero-rated supplies. They argued that the provisions of the Act override any inconsistencies with the rules, making them eligible for input tax credit refund. The applicant also claimed entitlement to make supplies under a bond or letter of undertaking as per CGST Rules 2017.During the personal hearing, the authorized representative emphasized that any supply to SEZ units is zero-rated, allowing for input tax credit refunds or IGST refunds. They argued that the term 'any supplies' encompasses all goods and services provided to SEZ units, including beverages and ingredients. They highlighted that separate registration of SEZ units and mentioning SEZ as the recipient in invoices suffices as proof of supply to SEZ.The Authority for Advance Rulings analyzed the definitions and provisions related to zero-rated supplies, SEZ operations, and authorized activities. They noted that SEZ units must conduct authorized operations certified by the proper officer to avail benefits. Despite the applicant's interpretation of 'any supply,' the ruling clarified that the term refers to specific categories within Section 16(1) of the IGST Act 2017. The authority highlighted the importance of activities being in line with authorized operations for zero-rated supplies to SEZ units.Referring to Rule 89 of the CGST Rules 2017, which mandates refunds for supplies certified as authorized operations, the ruling emphasized that the supply must be endorsed by the specified officer as constituting authorized operations. Since the applicant failed to demonstrate certification of their activity as an authorized operation, the ruling concluded that their supplies did not qualify as zero-rated.In conclusion, the Authority for Advance Rulings ruled that the supply of non-alcoholic beverages and ingredients to SEZ units using coffee vending machines by the applicant did not meet the criteria for zero-rated supply under Section 16 of the IGST Act 2017.