Reverse charge on SEZ units

[Yugank Goel]

Whether reverse charge is applicable for advocate services rendered to SEZ Units?

If yes, then what about the amount paid under reverse charge? Can we claim refund for the same?

Please clarify...

[Alkesh Jani]

Sir,

There are two type of reverse charge scenarios provided in GST. First is with regards to nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST Act, 2017 (refer Notification No.13/2017-CT (Rates) dated 28.06.2017 as amended from time to time.

Second scenario is covered by section 9 (4) of the CGST Act, 2017. However, all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST Act, 2017 / section 5(4) of IGST Act, 2017, till 31.06.2018 (Notification No. 10/2018-CT (Rates) dated 23.03.2018).

Based on above, I am of the view that even SEZ unit is required to pay tax under RCM for the legal services provided by an advocate. Further, ITC may be available for the tax paid. No refund claim can be filed, however, you can utilize for payment of IGST for export of goods and then claim for refund.

Our experts may correct me if mistaken.

Thanks

[Rajagopalan Ranganathan]

Sir,

All services imported by SEZ Unit or developer for authorized operations are exempt from IGST vide Notification No. 18/2017-Integrated Tax (Rate). dated 5.7.2017.

Therefore the service provided by an advocate will amount to import of service by SEZ Unit or developer for authorized operations and the same is exempted form IGST by the above referred Notification.

[Alkesh Jani]

Sir,

With due respect, I request our expert to please review considering the following:-

The import of service as per Section (2) (11) of IGST Act, 2017 which reads as follows:-

“(11) ‘‘import of services” means the supply of any service, where––

(i) the supplier of service is located outside India;

(ii) the recipient of service is located in India; and

(iii) the place of supply of service is in India;”

Further, inter-state supply in terms of Section 7 (5) of IGST Act, 2017 is as under:-

“7. (5) Supply of goods or services or both,––

(a) when the supplier is located in India and the place of supply is outside India;

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce”.

On going through above, I am still of the view that SEZ unit is liable to pay GST on reverse charge basis.

Our experts may correct me if mistaken.

With Regards

[Rajagopalan Ranganathan]

Sir,

Your points are correct as per the GST Law. However Government has issued a notification exempting IGST payable on services received by SEZ unit or developer for authorized operation. When such a beneficial Notification is available the SEZ unit or developer will avail the same though legally he is liable to pay IGST under reverse charge. May be the government will rescind this Notification if the legal provisions ar brought to its notice. We have to wait and see.

[YAGAY andSUN]

GST Refund for Export And Supply To SEZ

Exports and supplies to special economic zones are “zero” rated the IGST Act, 2017. Zero rating means that the entire supply chain of a particular “zero-rated supply” is free of GST. However, in the case of exempted supplies, output alone is exempted and GST is applicable on the input side. The quintessence of zero rating helps Indian businesses compete globally on the international market as it ensures that tax does not get added to the cost of exports.

A person having GST registration making a zero-rated supply is eligible to claim GST refund in accordance with the provisions of the CGST Act, 2017. The two options are mentioned below:

• Supply of goods or services under Bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilised input tax credit of CGST, SGST / UTGST and IGST; or
• Supply of goods or services with payment of integrated tax and claim of GST refund on tax paid.

[KASTURI SETHI]

GST not payable. Refund eligible. Rightly advised by both experts.

[Alkesh Jani]

 

Sir,

On going through the views expressed by our experts in the instant case, it can be said that an “Advocate” is required to obtain registration and service rendered to SEZ considering as export of service either on payment of IGST or under LUT and then claim refund of IGST paid, if any. Sorry I defer.

The export of service has been defined at Section 2(6) of IGST Act, 2017, which is as under:-

“(6) “export of services” means the supply of any service when,––

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;”

From above, it is clear that services rendered by an Advocate to SEZ unit is neither export nor it can be termed as import of services by SEZ unit, as service provider and recipient are having their establishment in INDIA. Therefore, Section 7(5) of IGST Act, 2017 is applicable and it is an inter-state supplies. SEZ unit is required to pay tax under RCM and can file refund of unutilized credit in terms of Section 54(3) of CGST Act,2017.

Our experts may correct me if mistaken.

With Regards,

[Mahadev R]

Advocate need not worry about liability as it is liable in recipient's hand. SEZ could take a view that it is zero rated supply to avoid paying tax. if does not want to debate, then SEZ better pay tax and claim refund.

[LAKSHMINARAYANAN TR]

By and Large, I echo the views of Alkesh Jani. SEZ is subject to 9(3), should discharge the tax and can go for refund of unutilised ITC on exports made with or without payment( both options available under refund scenarios). Notification no 18, applies only wrt to direct imports. Imports of services here only mean supplier located outside India so not applicable in case of an Advocate located in india.

[LAKSHMINARAYANAN TR]

Guess, we need to re-open this topic in light of recent amendment of SEZ rules 2006. As per SEZ act, procure from DTA is an import. Question is does SEZ overrule IGST for payment of RCM for advocate or GTA services?

There were case laws I beleive in the past where SEZ over rules other acts like VAT

[Shashank Tolwani]

Not applicable in light of clarification issued by the department via F No 334/335/2017-TRU dated December 18, 2017.

CA Shashank Tolwani

[KASTURI SETHI]

Sh.Tolwani Ji,

Will you please share this circular here ? Thanks

AI Summary

Reverse charge on services to SEZ units: recipient may be liable for GST, with ITC and refund routes available. Where an advocate located in India supplies services to an SEZ unit located in India and the place of supply is in India, the transaction is an inter state supply and the SEZ recipient is, in principle, liable to pay tax under the reverse charge mechanism. SEZ units that discharge tax under reverse charge may claim input tax credit for tax paid and, where credit remains unutilised because supplies to SEZs are zero rated or exempted by notification, seek refund or utilise the credit for IGST on exports. Notifications exempting IGST on services received by SEZs from non resident suppliers do not negate RCM when the supplier is in India.