2024 (4) TMI 845 - AAR - GST

SEZ units exempt from reverse charge GST on specified services under Notification 10/2017-IT with proper undertaking

AAR Gujarat ruled that an SEZ unit is not required to pay GST under reverse charge mechanism on specified services covered under Notification ... Reverse charge mechanism - zero rated supply - Letter of Undertaking in place of a bond - supplies to Special Economic Zone treated as inter-State supply - overriding effect of SEZ ActReverse charge mechanism - zero rated supply - Letter of Undertaking in place of a bond - Notification No. 10/2017-IT(Rate) - Notification No. 37/2017-Central Tax - SEZ Act overriding effect - Whether an SEZ unit is required to pay GST under reverse charge mechanism on specified services covered by Notification No. 10/2017-IT(Rate) - HELD THAT: - The Authority examined the interplay between the reverse charge levy under section 5(3) of the IGST Act as notified in Notification No. 10/2017-IT(Rate) and the provisions treating supplies to SEZ units as zero rated under section 16(1)(b) of the IGST Act, together with the SEZ Act and Rules. The SEZ legal framework treats receipt of services from DTA as 'import' and entitles SEZ units to exemptions subject to prescribed conditions; Rule 30 of the SEZ Rules and Notification No. 18/2017-IT(Rate) support zero-rating/exemption of supplies to SEZ units. The Authority relied on the administrative clarification (TRU/CBIC) and the mechanism under Notification No. 37/2017-Central Tax which permits suppliers to supply to SEZ units without payment of IGST where the SEZ unit furnishes a Letter of Undertaking in place of a bond. Applying these provisions and clarifications, the Authority concluded that an SEZ unit procuring the specified services from DTA need not pay IGST under the reverse charge notifications provided the SEZ unit furnishes the LUT or bond as specified in condition (i) of para 1 of Notification No. 37/2017-Central Tax. The Authority noted supporting reasoning in a recent AAAR order, but based its ruling on the combined effect of zero-rating, the SEZ Act/Rules, the CBIC/TRU clarification, and the LUT mechanism under Notification No. 37/2017-Central Tax. [Paras 13, 14, 15]An SEZ unit is not required to pay GST under RCM on the specified services under Notification No. 10/2017-IT(Rate), subject to furnishing a LUT or bond as per condition (i) of para 1 of Notification No. 37/2017-Central Tax.Final Conclusion: The advance ruling holds that the applicant SEZ unit need not pay GST under the reverse charge notifications for the specified services, provided the unit furnishes a Letter of Undertaking or bond in accordance with Notification No. 37/2017-Central Tax. Issues Involved:1. Whether the applicant, an SEZ unit, is required to pay GST under the reverse charge mechanism (RCM) on specified services in accordance with notification No. 10/2017-IT(Rate) dated 28.6.2017 as amended from time to time.Summary:Issue 1: Applicability of GST under RCM for SEZ UnitThe applicant, M/s Waaree Energies Limited, an SEZ unit, sought an advance ruling on whether they are required to pay GST under the reverse charge mechanism (RCM) for specified services such as Goods Transport Agency (GTA), legal services from an advocate, security services, and bus hiring for employees, as per notification No. 10/2017-IT(Rate) dated 28.06.2017.The applicant argued that as per section 7 of the SEZ Act 2005, they are exempt from GST on services procured from the Domestic Tariff Area (DTA) due to the overriding effect of section 51 of the SEZ Act, 2005. They also referred to various CBIC circulars and notifications, including notification No. 18/2017-IT(Rate) and Circular No. 48/22/2018-GST, which support their claim of exemption from GST under RCM for authorized operations in SEZ.During the hearing, the applicant reiterated their position, emphasizing that Rule 5(5)(a) of the SEZ Rules, 2006, provides exemption from SGST, and Rule 30(1) allows DTA suppliers to clear services to an SEZ unit as zero-rated supplies under section 16 of the IGST Act, 2017. They also cited previous rulings and circulars that support their interpretation.The Authority for Advance Ruling examined the relevant provisions and notifications, including section 5(3) of the Integrated Goods and Services Tax Act 2017, section 16 of the IGST Act, and notification No. 37/2017-CT. The Authority also considered the FAQs on GST and a clarification from the Tax Research Unit, CBIC, which stated that SEZ units can procure services without payment of IGST under RCM if they furnish a Letter of Undertaking (LUT) or bond.The Authority concluded that the applicant, an SEZ unit, is not required to pay GST under RCM on specified services, provided they furnish a LUT or bond as specified in condition (i) of para 1 of notification No. 37/2017-CT. This ruling aligns with the rationale provided in the Maharashtra Appellate Authority for Advance Ruling's order in the case of M/s. Portescap India P Ltd.Ruling: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) dated 28.6.2017 as amended from time to time, subject to furnishing a LUT or bond as specified in condition (i) of para 1 of notification No. 37/2017-CT.