2019 (3) TMI 1011 - AAAR - GST

SEZ unit's accommodation and food services to non-SEZ visitors liable to GST under Section 16 IGST Act

In Re: M/s. Sapthagiri Hospitality Private Limited

AAAR Gujarat ruled that accommodation and food services provided by SEZ unit to visitors not located in SEZ are liable to GST. The Authority held that ... Levy of GST - Supply of services to SEZ - supply of services by way of providing accommodation services, supplying food and beverages and supplying services ancillary to providing accommodation services - zero rated supply or not - Section 16 of the IGST Act, 2017 - Accommodation services to a visitor other than a visitor located in SEZ - Held that:- It is evident that clause (b) of sub-section (1) of Section 16 of the IGST Act, 2018 provides that supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit, is covered under ‘zero rated supply’. Thus, to be qualified as ‘zero rated’ supply, the law specifically refers the supply ‘to’ SEZ developer/unit and not ‘to or by’ SEZ developer / unit. Therefore, the supply of service by the appellant would be liable to Goods and Services Tax, unless specifically exempted by law. There is no doubt that supplies made by units or developers / co-developers of SEZ are treated as inter-state supply under Section 7(5) of the IGST Act, 2017 and are liable to IGST under Section 5(1) of the IGST Act, 2017. Out of these, only supplies made to SEZ developer / unit for authorized operations have been made zero rated, other are liable to IGST. The sub-section (1) of Section 53 of the SEZ Act, 2005 provides a deeming fiction whereby the Special Economic Zone shall be deemed to be a territory outside the customs territory of India and that too for the specific purposes of undertaking the authorized operations. The term “customs territory” cannot be equated to the territory of India. Further, the interpretation advanced by the appellant would lead to a situation where a Special Economic Zone would not be subject to any laws of India whatsoever. The entire SEZ Act, 2005 would be rendered redundant since it is stated to extend to the whole of India. Section 51 of the SEZ Act, 2005 provides for overriding effect in case there is anything inconsistent contained in any other law. However, no inconsistency between the provisions of the SEZ Act, 2005 and IGST Act, 2017 or CGST Act, 2017 / GGST Act, 2017 has been pointed out by the appellant - the reliance placed by the appellant on Section 53 and 51 of the SEZ Act, 2005 in support of contention that their activity in SEZ is not liable to IGST, is not acceptable. Section 53(2) of the SEZ Act, 2005 creates a deeming fiction whereby a SEZ is deemed to be a port, airport, inland container depot, land station and customs stations under section 7 of the Customs Act, 1962. On the other hand, Circular Nos. 46/2017-Cus dated 24.11.2017 and 3/1/2018-IGST dated 25.05.2018 clarified applicability of IGST / GST on goods transferred / sold while being deposited in a warehouse registered under section 57 or 58 or 58A of the Customs Act, 1962 (customs bonded warehouse), without payment of duty. The purpose of appointing any port, airport etc. under Section 7 of the Customs Act, 1962 is quite different than the purpose of licensing any warehouse under Section 57, 58 or 58A of the Customs Act, 1962. Therefore, the clarification issued for customs bonded warehouse are not applicable to the appellant even if a SEZ is deemed to be a port etc. under Section 7 of the Customs Act, 1962. Application disposed off. Issues:1. Liability of GST on services provided by a hotel in a non-processing zone of a Special Economic Zone (SEZ) to clients within and outside the SEZ.2. Applicability of IGST on services provided by the hotel to visitors outside the SEZ.Analysis:1. The Gujarat Authority for Advance Ruling (GAAR) ruled that services provided by the hotel to clients within the SEZ are zero-rated supplies under the IGST Act, 2017. However, services provided to clients outside the SEZ are liable to GST under Section 5(1) of the IGST Act, 2017.2. The appellant appealed against the ruling specifically concerning services provided to visitors outside the SEZ. The appellant acknowledged no objection to the ruling on services within the SEZ but contested the ruling on services outside the SEZ.3. The delay in filing the appeal was condoned due to genuine confusion regarding the correct authority for filing. The appellant's argument emphasized the destination principle of GST, stating that as services were provided within the SEZ, no IGST should apply. However, the tribunal clarified that the supply to visitors outside the SEZ is liable to IGST.4. The appellant cited Section 53 and 51 of the SEZ Act, 2005, arguing that services provided within the SEZ should not be subject to IGST. The tribunal disagreed, stating that the SEZ Act does not exempt services from IGST unless specifically provided for.5. The appellant referenced an Advance Ruling from Kerala and a Customs Circular, which were deemed irrelevant to the current case as they addressed different issues. The tribunal found no applicability of these references to the present matter.6. Further, the appellant relied on Section 53(2) of the SEZ Act, 2005 and specific Circulars to support their argument against IGST. The tribunal clarified that the provisions cited were not applicable to the services provided by the appellant in the SEZ.7. Ultimately, the tribunal upheld the GAAR ruling, confirming the liability of the appellant to pay GST on services provided to visitors outside the SEZ. The appeal by M/s. Sapthagiri Hospitality Private Limited was rejected based on the detailed analysis and interpretation of relevant legal provisions.