2024 (4) TMI 844 - AAR - GST

SEZ units exempt from GST reverse charge on legal services with proper undertaking under Notification 37/2017-CT

AAR Gujarat ruled that an SEZ unit is not liable to pay GST under reverse charge mechanism on legal services received from advocates. The unit can procure ... Zero-rated supply to Special Economic Zone - Reverse charge mechanism - Letter of Undertaking in lieu of bond for zero-rated supplies - Exemption of services imported by SEZ unit - Overriding effect of the SEZ ActZero-rated supply to Special Economic Zone - Reverse charge mechanism - Notification No. 10/2017-Integrated Tax (Rate) - Notification No. 37/2017-Central Tax (Letter of Undertaking) - Exemption of services imported by SEZ unit - Whether an SEZ unit is required to pay GST under reverse charge on legal services received from an advocate under Notification No.10/2017-Integrated Tax (Rate). - HELD THAT: - The Authority examined section 16 of the IGST Act which treats supplies to a Special Economic Zone unit for authorised operations as zero-rated and noted the exemption in Notification No.18/2017-Integrated Tax (Rate) for services imported by an SEZ unit. The scheme of the IGST Act, read with Rule 30 of the SEZ Rules and Rule 5(5)(a) of the SEZ Rules, contemplates that supplies from the Domestic Tariff Area to an SEZ unit may be treated as zero-rated and cleared either under bond or a Letter of Undertaking. The Authority considered the CBIC/Tax Research Unit clarification and the FAQs indicating that an SEZ unit may furnish a Letter of Undertaking in place of payment of IGST where reverse charge would otherwise apply, and found persuasive the reasoning of a recent appellate AAR order on the point. Applying these provisions and clarifications, the Authority held that an SEZ unit need not discharge GST under the reverse charge notification for the specified legal services provided the unit furnishes the Letter of Undertaking or bond as prescribed in condition (i) of para 1 of Notification No.37/2017-Central Tax; thus the obligation to pay under reverse charge is obviated by the zero-rated/LUT mechanism. [Paras 16]The applicant, an SEZ unit, is not required to pay GST under reverse charge on the specified legal services under Notification No.10/2017-IT(Rate), subject to furnishing a Letter of Undertaking or bond as specified in condition (i) of para 1 of Notification No.37/2017-Central Tax.Final Conclusion: The Advance Ruling holds that supplies of the specified legal services to the SEZ unit are not liable to GST under the reverse charge mechanism provided the SEZ unit furnishes the prescribed Letter of Undertaking or bond; the second question on the tax head is rendered infructuous. Issues Involved:1. Whether an SEZ unit is required to pay tax under reverse charge mechanism (RCM) on services received from an advocate.2. If affirmative, under which tax head (IGST or CGST and SGST) should the tax under RCM be paid.Summary:Issue 1: Tax Liability Under Reverse Charge MechanismThe applicant, an SEZ unit, sought clarification on whether it is required to pay GST under RCM on services received from an advocate as per Notification No. 10/2017-Integrated Tax (Rate). The applicant argued that supplies to SEZ units are zero-rated u/s 16 of the IGST Act, 2017, and thus should be exempt from GST under RCM. They referenced Rule 5(5)(a) and Rule 30(1) of the SEZ Rules, 2006, and Notification No. 18/2017-IT (Rate) which exempts services imported by an SEZ unit for authorized operations. Additionally, they cited Section 51 of the SEZ Act, 2005, which has an overriding effect over other laws.The Authority for Advance Ruling (AAR) noted that the FAQs on GST clarify that SEZ units must pay IGST under RCM when receiving supplies. However, Notification No. 37/2017-CT allows SEZ units to procure services without payment of IGST by furnishing a Letter of Undertaking (LUT) or bond. The AAR also referred to a clarification from the Tax Research Unit, CBIC, which supports the applicant's position.Ruling:The AAR ruled that the applicant, an SEZ unit, is not required to pay GST under RCM on specified services in accordance with Notification No. 10/2017-IT (Rate), subject to furnishing a LUT or bond as specified in Notification No. 37/2017-CT.Issue 2: Tax Head for Payment Under RCMGiven the ruling on the first issue, the second question regarding the tax head under which the RCM payment should be made was rendered infructuous.