SEZ accommodation services qualify as inter-state supply under Section 7(5)(b) IGST Act, zero-rated if for authorized operations

AAR Karnataka ruled that accommodation services provided to SEZ Units constitute inter-state supply under Section 7(5)(b) of IGST Act, 2017, overriding Section 12(3)(c). When services are for authorized SEZ operations, they qualify as zero-rated supplies under Section 16(1). However, if services are not for authorized operations, they remain taxable at 18% IGST with place of supply being where services are rendered, though still covered under IGST Act provisions.

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Issues:
- Interpretation of IGST applicability for accommodation services provided to SEZ Units outside the SEZ Zone.

Analysis:
The applicant, a Proprietary concern, sought an advance ruling on the IGST applicability for invoices raised to SEZ Units for accommodation services rendered outside the SEZ Zone. The applicant stated that although their business, "The Pommels," is located outside the SEZ Zone, they provide accommodation services to SEZ Unit employees as per the SEZ Unit's instruction to raise invoices with IGST at 0%. The authorized representative reiterated these points during the hearing.

The Authority analyzed the transaction and found that the SEZ Unit, being liable to pay for the accommodation services, qualifies as the recipient under the CGST Act. Referring to the IGST Act, the Authority determined that the transaction constitutes an inter-State supply of services to the SEZ Unit, as per section 7(5)(b) of the IGST Act. A circular clarified that services provided to SEZ Units are considered inter-State supplies, overriding any conflicting provisions.

Further, the applicant provided a circular stating that accommodation services for SEZ Units are zero-rated for authorized operations under Section 16(1) of the IGST Act, benefiting from service tax exemptions. However, if the services are not for authorized operations, they are taxable at 18% IGST. The ruling confirmed that accommodation services to SEZ Units are inter-State supplies, zero-rated for authorized operations, and taxable at 18% for non-authorized operations.

In conclusion, the ruling clarified that accommodation services provided to SEZ Units outside the SEZ Zone are inter-State supplies, subject to zero-rated tax for authorized operations and 18% IGST for non-authorized operations. The judgment provided detailed analysis based on relevant legal provisions and circulars to determine the IGST applicability for such transactions.

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