Supply to SEZ

[Kaustubh Karandikar]

Q is running say a hotel in Maharashtra. An employee of one SEZ Unit/ Company stays in that hotel, while being on official duty on behalf of the said SEZ unit. Q is required to raise the Invoice on the SEZ Unit/Company outside Maharashtra. a) Whether supply of service to an employee on behalf of the SEZ Unit would be considered to be supply to SEZ Unit and be treated as Zero Rated? b) If the answer to a) is affirmative, then whether Q shall have to comply with LUT formalities? c) In case Q has to charge GST, Whether Q is required to charge SGST & CGST OR IGST?

[Atul Rathod]

It shall be zero rated supply, LUT need to be executed by hotel, and IGST has to be charged. Advance ruling as well as circular (14.06.2018) also has been issued in this regard.

[Atul Rathod]

i mean if there is no LUT executed by Hotel, than it shall be treated as Inter state supply and IGST shall be charged.

[Alkesh Jani]

Sir,

In this regards, I agree with view expressed by our expert, further, wish to add that in the Circular No.48/2018 dated 14.06.2018, at Para 2 and Clarification at Para 2.2, it is mentioned that "...as the case may be, only if such supplies have been received by the SEZ developer or SEZ unit for authorized operations. An endorsement to this effect shall have to be issued by the specified officer of the Zone." should be given due attention.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

Yes. The phrase, " For Authorised Operations" is crucial/vital point pointed out by you.

[Alkesh Jani]

Dear Shri Kasturiji Sir,

Sometimes keeping in view GST Act, provisions and procedures of allied act are over sighted. The operation in SEZ Unit is governed by SEZ Act,2005, where procurement and sale to DTA etc are given. LOI and LOA, consisting of list of goods and services (approved by SEZ Authority) are approved for authorised operation. if the goods or services not in that list, SEZ Unit or Developer is required to obtain permission from the Authority. So one should take utmost care even while reading the provisions of Act or Rules.

Although it is addressed to you, but same is for learners.

With Due Regards

[Atul Rathod]

Section 16 of igst act- any supply to sez would be treated as zero rated supply and no condition is there as such related to “authorised operation”. However in rules it is coming out that supplies shall be for authorised operation while applying for refund.

Though the intention of law is to bring out that sez supplies shall be for authorised operation but not coming through specific section. Can rules override the act?

However, coffee day advance ruling given by Karnataka clears that the same shall be for authoirzed operation.

[DEVARA SIVAPRASAD]

Mr Athul Rathod I would like to inform you that SEZ Units/Developers are granted exemption to import/procure services under Section 7 of the SEZ Act, 2005 subject to such terms, conditions and limitations as may be prescribed. In this regard, Rule 22 of the SEZ Rules prescribes those terms, conditions, and limitations how they should procure and what for those services procured. To understand any Law, what are the Legal provisions those are being governed is a vital point here. Even though, Section 16 of the IGST is slent on "Authorized Operations", here in SEZ Act, these things were explained. As such, these provisions should be read in conjunction for clarity. That is why beacuse, CBIC also mentioned that clause of "Authorized Operations".Most Importantly, SEZ Units are being governed by SEZ Act,2005 and the Rules made thereunder and wherever there is conflict between SEZ Act and other Law, SEZ LAw will be having overriding effect as per Section 51 of the SEZ Act,2005 as they mentioned/used the term "Law" in the said section. This issue is undisputed. As such, there is limitation for exemptipn of service to be procured/supply to SEZ by way of "Authorized Operations". Hope, I clarified all your doubts in best manner.

D.SIVAPRASAD

AUTHORIZED OFFICER OF CUSTOMS

APIIC BUILDING PRODUCTS SEZ, ONGOLE, A.P

[DEVARA SIVAPRASAD]

I would like to comment on Section Vs Rule also. It is settled Law that Section overrides Rule. However as per above said Reply, the restriction "Authorized Operations" in Refund rules is an extension to what was said in Section 16 but not contrary to it. Most importantly, whenever the Law makers notifies Rules and Regulations for the implementation Act itself. That is why because Rules and Regulations known to be derived from the section/s. However, the matter is undisputed here as per my explanation. Even if a conflict occurs between Section Vs Rule, it has to be interpreted in such a manner as per the "Intention and spirit of the Legislature" for which is drafted with all Governing provisions. In such case, if anything contradicts section, then section prevails over rule.

[Atul Rathod]

Dear sir,

i am very well aware of all this provision. I just restricted my answer to the gst law.

Further would like to add in the provisions though SEZ act prevails over any other act but the sez law is coming from article 246 where as gst law is coming from 246A which is also notwithstanding to 246.

Further would like to know your view on rcm applicability to sez unit? Say security services?-assuming the same is for authorised operation.

[DEVARA SIVAPRASAD]

Dear Athul Rathod

I would like to thank you on this occasion to draw my attention once again towards that "Notwithstanding" clause used while inserting Article 246A in the constitution with reference to Article 246 and Article 254 of the constitution. The 101 Constitution Amendment done to facilitate levy and collection of GST as it doesn't find its entry in the state list or union list or concurrent list also. It is a Special Law evolved as result of consultations and deliberations between and states and Centre and other stake holders over the period of time by forming GST Council to recommend all suggestions with regard to GST. As such, insertion of new Article for GST has become invariable. This Notwithstanding clause/priority provisions used in Article 249 A meant to facilitate Levy and collection of GST but not to override other provisions mentioned in Article 246 and Article 254. Due care has been taken wherever required while inserting Article 249 A by the Law makers themselves in the 101 Constitution Amendment itself by making necessary amendments/ inserting new Articles.

As a conclusion, as I said earlier, section 51 of the SEZ Act still will be overriding effect as they Law makers used the term overriding effect over any other "Law" for the time being in force whether ith might be SGST,CGST, IGST or UTGST,. Hope I clarified this issue again.

[DEVARA SIVAPRASAD]

While coming to your question about "Reverse Charge mechanism", even before introduction of GST, SEZ Units/Developers used to avail exemption whatever services imported by them irrespective of "point of Taxation" and "place of provision of service". why because, as per section 53(1) of the SEZ Act, SEZs are deemed to be outside the "customs territory of India" for its "authorized operations, duties, Tariffs". The definitions provided for customs territory of India and the definition provided for "India " is one and the same under GST Act. As such, it is an "Import of Service " only for SEZs irrespective of POT Rules/POPS Rules. Moreover as I said earlier, the intention of the Legislature to provide relief from duties, tariffs and taxes to SEZ Units/Developers. so they no need to pay in any case. In the Question posted by Mr. Kaustubh Karandikar and CBIC clarification on the interstate supply specific provision overriding effect on General provision itself is an answer to your question on this subject. hope I clarified this issue also.

AI Summary

Zero-rated supply: hotel services invoiced to SEZ units treated as zero-rated, subject to LUT and authorised-operation conditions.
Supply of hotel accommodation invoiced to an SEZ unit for an employee on official duty is a zero-rated supply, requiring the supplier to execute an LUT to claim zero-rating; without LUT IGST is chargeable. Administrative rules and circulars condition refunds and benefits on supplies being for authorized operations with specified officer endorsement, and the SEZ Act and Rules govern eligibility and may override general law for SEZ matters.