whether supplies to a Special Economic Zone (SEZ) qualify as “zero-rated supplies” when the “Bill to” party is located outside India and the “Ship to” party is located within an SEZ in India

[Hemlata Agarwal]

Whether supplies to a Special Economic Zone (SEZ) qualify as “zero-rated supplies” when the “Bill to” party is located outside India and the “Ship to” party is located within an SEZ in India. The tax invoice will issue to the Foreign Party, whose registered office is located outside India, while listing the SEZ unit as the consignee. Payments for these supplies will be received by the Company in convertible foreign currency.

 

[Sadanand Bulbule]

Under Section 16(1)(b) of the IGST Act, 2017, any supply of goods or services to a Special Economic Zone (SEZ) unit or developer qualifies as a “zero-rated supply”, irrespective of the location of the billing party, provided the supply is for authorised operations of the SEZ. Further, by virtue of Section 7(5)(b) of the IGST Act, supplies to an SEZ are treated as inter-State supplies, enabling zero-rating benefits such as supply under LUT without payment of IGST or refund of IGST paid. Accordingly, even where the invoice is raised on a foreign entity (“Bill-to”) and the goods/services are delivered to an SEZ unit in India (“Ship-to”) with consideration received in convertible foreign exchange, the transaction would generally be treated as a zero-rated supply to SEZ rather than an export, subject to proper SEZ endorsement and statutory compliance.

[YAGAY andSUN]

Under Section 16(1)(b) of the Integrated Goods and Services Tax Act, 2017, any supply of goods or services to a Special Economic Zone (SEZ) unit or SEZ developer qualifies as a zero-rated supply. In the present case, although the tax invoice is issued to a foreign entity located outside India under a “Bill-to” arrangement, the goods are physically supplied to and received by an SEZ unit in India as the “Ship-to” consignee. For GST purposes, the determinative factor is the actual recipient of the supply, i.e., the SEZ unit, and not merely the billing address. Accordingly, where the supply is made to an SEZ unit for its authorized operations, such supply squarely falls within the scope of zero-rated supplies under the IGST Act.

Further, the receipt of consideration in convertible foreign exchange reinforces the bona fide nature of the transaction but is not a mandatory condition for zero-rating in the case of supplies to SEZ units. The supplier is entitled to avail the benefits of zero-rated supplies either by making the supply without payment of IGST under a valid Letter of Undertaking or bond and claiming refund of unutilized input tax credit, or by making the supply on payment of IGST and subsequently claiming refund of the tax paid, subject to compliance with prescribed documentation and endorsement requirements under GST and SEZ laws.

[Suresh Yadav]

Under Section 10(1)(b) of the IGST Act, where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;

In a "Bill to / Ship to" transaction, the place of supply is deemed to be the principal place of business of the person who gave the instructions (the "Bill to" party). Since your "Bill to" party is a foreign entity, the place of supply is deemed to be outside India. In case of Service, it qualify as export of Service Section 2(6) of IGST Act.

But in case of Goods, it doesnt qualify as Export of goods as per Section 2(5)IGST Act. Because goods delivered to SEZ unit cannot be considered as OUTSIDE INDIA.

Therefore, as per condition given in question, it is treated as zero-rated supplies in case of Services and not considered as zero-rated supplies in case of Goods.

[Sadanand Bulbule]

Dear Suresh Yadav ji

The Supremacy of Section 16(1)(b). 

In my understanding your reply has ignored the second limb of Zero-Rated supplies. Under Section 16(1) of the IGST Act, "zero-rated supply" means any of the following supplies of goods or services, namely:

1. Export of goods or services; OR

2. Supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit.

The Fact:

Even if the transaction does not meet the definition of "Export" under Section 2(5) (because the goods don't leave India), it indisputably qualifies as a Zero-Rated supply under Section 16(1)(b) because the goods are delivered to an SEZ unit.

The CBIC has already clarified the "Bill-to/Ship-to" mechanics. In a scenario where the "Bill-to" party is located outside India and the "Ship-to" party is an SEZ unit: The supplier (Domestic) issues an invoice to the Foreign Entity. The goods move to the SEZ unit. 

The logic that delivery to an SEZ is not "Zero-Rated" simply because it doesn't qualify as an "Export" is a misinterpretation of Section 16. The IGST Act provides two independent pathways for Zero-Rating. The delivery to an SEZ unit is a deemed inter-state supply and is eligible for all zero-rated benefits, regardless of the billing address or the technical "Place of Supply" definition in Section 10.

Conclusion:

Since the goods are consumed within the SEZ for authorized operations, the supplier is entitled to claim the benefit of Zero-Rating (either under LUT or on payment of IGST). 

[KASTURI SETHI]

I  fully endorse the replies of Sh.Sadanand Bulbule, Sir and M/s. Yagay and Sun, Sirs.

The word, "OR" is a conjunction. The dictionary meaning of the word, "OR" is a particle used to connect words, phrases or classes representing alternatives. At times the word, "OR" also means "AND". No isolation. The definition of Zero Rated Supply under Section 16 is meant for both goods and services. Here we are to go by Section 16 and NOT Section 10(1)(b). Section 16(1) is relevant.

[Suresh Yadav]

Respected sir,

In this case we don’t know the SEZ person. We have supplied goods to SEZ unit on the direction of foreign party. In this case Section 10(1)(b) will be applicable and tax liability/ provision of services would be identified as per Bill to party (foreign party)

Therefore, Section 16(1)(b) is not applicable because our provision of services would be decided as per our Bill to party i.e. foreign party.

We cannot bypass provision of 10(1)(b) Of IGST Act

[Sadanand Bulbule]

Dear Sir ji

I welcome your meaningful validation.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

Well analysed in reply at 4.2.

[Sadanand Bulbule]

"Square peg in the round hole"

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

You have used the proverb, "A square peg in a round hole". Will you clarify how the application of the proverb is in the fitness of things here?  Are both the expressions at serial no.5 and 7 above not contradictory?

Pl. enlighten me.

Thanks a lot.

[Sadanand Bulbule]

Dear Sir ji

The idiom “putting a square peg in a round hole” evocatively captures the interpretative dissonance that arises when legal provisions are viewed through an ill-suited conceptual lens. When meanings, conditions, or constraints are imported into a statute without clear textual or purposive foundation, the exercise risks unsettling the delicate balance between legislative intent and judicial or administrative construction. Such an approach often produces more confusion than clarity, distorting both the spirit and structure of the law. A refined academic understanding therefore calls for interpretation that is contextual, purposive, and faithful to legislative design, rather than forcing incongruous frameworks onto provisions in a manner that obscures their true object and coherence.

In simple words, interpretation of law depends upon how it is understood or misunderstood.

[KASTURI SETHI]

       Sh.Sadanand Bulbule Ji,

                                       Sir,   Thank you very much for your prompt response.  I have got it.  But my question is dont you find contradiction between  7 and 5 above ?

 

 

AI Summary

Bill-to outside, Ship-to SEZ supplies: zero-rating hinges on goods versus services; services export, goods SEZ zero rated. Whether a supply invoiced to a foreign 'bill to' but delivered to an SEZ 'ship to' qualifies as zero rated hinges on statutory characterisation under the IGST Act. Where the supply is of services, the place of supply is deemed to be the foreign principal under the bill to/ship to rule, producing export treatment and zero rating; outcome: treated as export of services. Where the supply is of goods, the SEZ delivery attracts Section 16(1)(b) treatment as a supply to an SEZ and is zero rated as a deemed inter state SEZ supply regardless of the billing address; outcome: eligible for zero rating subject to SEZ endorsement and compliance. Documentation and LUT/bond or IGST payment plus refund procedures apply.