Solar plant in SEZ unit

[Abhijeet Mane]

Dear Experts,

I have a client (a DTA ) who wishes to set up a solar power plant at SEZ site to supply them electrical energy but is prohibited to register is a its additional place of business. the plant will be owned and operated by my client. what implication it may face due to this restriction. also if they are not allowed to register it as its additional place of business how can they manage entry of materials necessary for installation and operation of plant at SEZ site ?

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Whether your client has satisfied all the SEZ Norms to set up a unit in the SEZ area. Whether the GST authorities have prohibited treating the unit as an additional place. Please elaborate your query.

[Raam Srinivasan Swaminathan Kalpathi]

Kindly refer to second proviso Sec.25 which clearly delineates "Provided further that a person having a unit as defined in the SEZ Act, 2005 in a SEZ or being a SEZ developer shall have to apply for a separate registration as distinct from his place of business located outside the SEZ in the same State or Union territory".  Just FYI prior to 01-02-2019 the same wordings were in Rule 8 which was inserted into Section 25 as the Rules were overriding the provisions of the Section and was prone to challenge. 

Therefore please apply for a GSTN at SEZ location and make a zero rated invoice to your SEZ unit and either avail the ITC for payment for DTA supplies for claim refund u/s. 54. The other option which this correspondent has not tried is to pay IGST and claim refund of the same from the department.  Thanks

[Shilpi Jain]

Pls have a look at the recent circular issued w.r.t. claiming credit in case of ex-works. It has been clarified that the place of receipt is not relevant i.e. it is not necessary that goods should be received at the registered premises to be eligible for credit.

Use this for your present situation.

Though going forward - please chk why there is prohibition in registering as additional place of business and then seek for guidance.

[Yash Shah]

The second proviso of sub-section 1 of section 25 of the CGST Act provides that a person, "A person having a unit, as defined in the SEZ act 2005, in a special economic zone developer shall have to apply for a separate registration, as distinct from his place of business located outside the special economic zone in the same state or union"

As per section 4 of section 25 of the CGST act a person who has obtained or is required to obtain more than one registration, whether in one state or union territory or more than one state or union territory shall, in respect of each such registration, be treated as a distinct person for the purpose of this act."

As per the above provision, it is mandatory to obtain a separate registration for the SEZ unit and the SEZ unit and DTA unit shall be treated as distinct persons for this act therefore, the SEZ unit can not be declared as an additional place of business as both are registered and distinct to each other. 

There are the following implications due to this restriction:

As per entry 2 of Schedule I of the CGST act, the supply of goods or services or both between distinct or related persons, when made in the course of furtherance of business, shall be treated as supply even though made without consideration, therefore, supply from the DTA to the SEZ unit is supply and liable to charge GST however as per section 16 of the IGST act supply of goods or service or both (for authorised operation) to an SEZ act or SEZ unit shall be Zero rated supply but it will lead to increase in compliance procedure.

It will lead to an increase in other compliance procedures such as monthly and annually returns for both the registration etc.

As the supply from DTA to SEZ is treated as an Export of goods or services or both therefore for entering the material in SEZ is required to follow the procedure that is followed during the export.

AI Summary

Separate GST registration requirement restricts treating SEZ unit as additional place; supplies treated as zero rated exports with added compliance. A separate GST registration is mandatory for a DTA taxpayer operating a solar plant inside an SEZ, rendering the SEZ unit a distinct person with separate compliance obligations. Supplies from the DTA to the SEZ unit are taxable inter unit supplies but may be zero rated for authorized operations, requiring export style procedures for material entry and reliance on input tax credit or refund mechanisms.