2019 (10) TMI 525 - AAR - GST

Accommodation services to SEZ units qualify as zero-rated supplies under Section 16(1)(b) IGST Act with proper LUT execution

In Re: M/s. Carnation Hotels Private Limited

The AAR Karnataka ruled that accommodation services provided to SEZ units constitute zero-rated supplies under Section 16(1)(b) of IGST Act, 2017. The ... Levy of CGST and SGST/IGST - accommodation service proposed to be rendered by the applicant to SEZ units - zero rated supplies or not - whether invoice can be raised without charging Tax after executing LUT under section 16? - HELD THAT:- Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit are treated as Zero Rated Supply in terms of Section 16(1)(b) of IGST Act, 2017. Further Rule 46 of CGST Rules 2017 stipulates that the invoice shall carry an endorsement “Supply meant for export / Supply to SEZ unit or SEZ Developer for authorised operations on payment of Integrated Tax or Supply meant for Export / Supply to SEZ unit or SEZ Developer for authorised operations under Bond or letter of Undertaking without payment of Integrated Tax as the case may be - Therefore on reading Section 16(1)(b) of IGST Act, 2017 & Rule 46 of CGST Rules 2017 together it is clearly evident that the supplies of goods or services or both towards the authorised operations only shall be treated as Supplies to SEZ Developer / SEZ unit. Thus, the present transaction proposed to be made by the applicant where he provides the accommodation services in his hotel to SEZ Unit would be treated as inter-State supply. Whether this supply of services to a SEZ Unit would be treated as a Zero rate supply? - HELD THAT:- The supply of accommodation services provided to a SEZ Unit would be treated as a Zero-rated supply and this is subject to the provisions of section 17(5) of the CGST Act. Issues involved:1. Determination of tax liability for accommodation services provided to SEZ units.2. Clarification on whether the accommodation services to SEZ units can be treated as zero-rated supplies.Analysis of the Judgment:Issue 1: Determination of tax liability for accommodation services provided to SEZ units:The applicant sought an advance ruling to determine whether the accommodation services proposed to be rendered to SEZ units would be liable under CGST and SGST or IGST. The applicant argued that as per Section 12(3) of the IGST Act 2017, the place of supply of services by way of lodging accommodation of the hotel shall be the location of the immovable property. Therefore, services rendered by hotels within the same state attract CGST+SGST, irrespective of the location of the recipient. Furthermore, the applicant contended that services provided to SEZ units should be treated as interstate supplies under the IGST Act, subject to IGST levy, even if the supplier and the place of service are in the same state. The Authority considered these arguments and analyzed the provisions of the IGST Act to determine the tax liability for such services.Issue 2: Clarification on whether the accommodation services to SEZ units can be treated as zero-rated supplies:The Authority referred to Section 16(1)(b) of the IGST Act, which treats the supply of goods or services to SEZ developers or units as zero-rated supplies. Additionally, Rule 46 of the CGST Rules 2017 specifies the endorsement required on invoices for supplies meant for export or to SEZ units. The Authority also cited a Circular issued by the Central Government clarifying that services provided to SEZ developers or units, including short-term accommodation, conferencing, and banqueting, should be treated as interstate supplies. The Circular further explained the conditions under which zero-rated supply benefits can be availed by suppliers to SEZ developers or units. Based on these provisions and clarifications, the Authority concluded that the accommodation services provided to SEZ units would be considered zero-rated supplies, subject to certain conditions outlined in the relevant legal provisions.In light of the above analysis, the Authority ruled that the accommodation services proposed to be rendered to SEZ units are covered under the IGST Act as inter-State supplies. Consequently, these services can be treated as zero-rated supplies, allowing the applicant to raise invoices without charging tax after executing a Letter of Undertaking under Section 16 of the IGST Act.This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Authority's rulings on the tax liability and zero-rated treatment of accommodation services provided to SEZ units.