Is Government SEZ Authority required to deducts TDS

[CASeetharaman KC]

Is a Government SEZ Authority formed by Act of parliament required to deduct TDS or would it be excluded under the proviso to Section 51 "Provided that no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient."

[DR.MARIAPPAN GOVINDARAJAN]

In my view it is not required.

[CASeetharaman KC]

Sir I subscribe to your view and wish it is correct but there are some areas which may be looked at

1. CGST Act Section 51 read with Section 20 of IGST Act TDS would be applicable to both intra and inter state transactions

2. The proviso says the the no deduction is required if location of the supplier and place of supply is in a different state than the state of registration of the recepient.

So if the SEZ is registered in UP and the supplier is also registeredin UP and the place of Supply is also UP the TDS would be deductible

As per IGST Act Section 7 any supply to or by a SEZ is interstate sale.but the proviso speaks about the location of the supplier and the place of supply being in a different state than that of the registration of the recepient

There could be instances where the above conditions are satisfied.

[Alkesh Jani]

Dear Sir,

In this regards, my point of view is that, Section 51 of the CGST Act,2017 states that if supply is inter-state, CGST and SGST is not applicable and IGST comes in to force. Further, No deduction of CGST and SGST shall be made.

Moreover, Section 20 of IGST Act,2017 clearly states that the provisions of TDS shall be applicable as if it is enacted under IGST Act, therefore, If the supplies are inter-state TDS is to be deducted as IGST Tax.

The fliers issued by the Board also clarifies the same and relevant portion is reproduced below:-

“Registration of TDS deductors: A TDS deductor has to compulsorily register without any threshold limit. The deductor has a privilege of obtaining registration under GST without having required to obtain PAN. He can obtain registration using his Tax Deduction and Collection Account Number (TAN) issued under the Income Tax Act,1961.

........This can be explained in the following situations.

a) Supplier, place of supply and recipient are in the same state. It would be intra-state supply and TDS (Central plus State tax) shall be deducted. It would be possible for the supplier (i.e. the deductee) to take credit of TDS in his electronic cash ledger.

b) Supplier as well as place of supply are in different states. In such cases, integrated tax would be levied. TDS to be deducted would be TDS (Integrated tax) and it would be possible for the supplier (i.e. the deductee) to take credit of TDS in his electronic cash ledger.

c) Supplier as well as place of supply are in State A and recipient is located in State B. The supply would be intra-State supply and Central tax and State tax would be levied. In such case, transfer of TDS (Central tax + State tax State B) to the cash ledger of the supplier (Central tax + State tax of State A) would be difficult. So in such cases, TDS would not be deducted.

Thus, when both the supplier as well as place of supply are different from that of recipient, no tax deduction at source would be made.”

Hope this reply will clear your doubts.

Thanks

[CASeetharaman KC]

Thank You Sir for your comments which have explained the concept behind the TDS, however there are still the following areas of concern

1. In case of an SEZ the goods or services supplied to or by an SEZ is termed as interstate sale and would be subject to IGST. So even if the TDS deduction is made as IGST the credit for the same can be taken by the local supplier to pay CGST and SGST so even if the TDS is deducted the input can be availed by the supplier

2. The question which arises here is that by virtue of Section 7 (5) of the IGST Act all supplies to SEZ units are interstate transactions - Does this mean that the Location of the Supplier and the Place of Supply is in a different state from the state of registration of the recepient ?

Request your thoughts on these two points which would be very helpful

[Alkesh Jani]

Sir,

I acknowledge your concern. In this regards, as far as my knowledge permits me, I have following comments to offer:-

In terms of Section 51 of CGST Act, 2017, the notified person is required to obtain registration as TDS. Normally, the TDS registration will be based on TAN, although holding PAN. Some Govt. Department such as Railway and postal department are example of holding PAN as well as TAN. TDS is required to deduct Tax if the contract value is more than ₹ 2,50,000/-.

With regards to the query the SEZ authority formed by the Act of the parliament can be termed as SEZ unit (or Developer, if such activities are undertaken) if the said Authority is holding PAN and is registered as SEZ unit or SEZ Developer. The said authority is also required to register himself as TDS on the basis of TAN and any supplies to the said registration based on TAN cannot be termed as supplies to SEZ unit or SEZ Developer. The works order or contracts are given by the TAN based authority and Invoices are also raised in the name of TAN based registration. Therefore, TAN based and PAN based of the same authority can be considered as distinct person.

Thanks,

With Due regards,

AI Summary

TDS deduction under GST hinges on supplier/place of supply versus recipient registration state, affecting SEZ transactions and IGST treatment.
Application of GST TDS to a Government SEZ Authority depends on the interplay between the statutory TDS obligation for notified persons and the proviso excluding deduction where the supplier's location and the place of supply are in a different state from the recipient's state of registration. Supplies to or by an SEZ are treated as inter state for IGST, so TDS would generally be as integrated tax unless the proviso's factual condition precludes withholding. Administrative factors such as separate TAN/PAN based registrations affect whether a government SEZ authority is the deductor.