A special economic zone (SEZ) is considered as a zone wherein easier legal compliances and simpler taxes can be enjoyed. On the national borders of a country, the Special Economic Zone developer/unit is located. For tax purposes SEZ is treated as a foreign territory even though they are located in India, they are not considered as a part of our country. And due to this reason, supply from and to special economic zones are treated differently than the regular supplies. Under GST, the Inter-state supply and Integrated Goods and Services (IGST) will be applicable on any supply to or by a Special Economic Zone unit.
The Impact of GST Regime on SEZ
- When it comes to taxes, the Special Economic Zone developer has certain advantages. Any supply of goods and services into SEZ is exempt from GST and it will be considered to be a zero-rated supply. Zero tax rate under GST is imposed on these supplies.
- The goods supplied by the supplier to SEZ are under claim credit of ITC and bond or Letter of undertaking (LUT) without payment of IGST; or
- The supplier can supply on claim refund of taxes paid and on payment of IGST.
- Any supply of goods or services or both by the SEZ to anyone will attract IGST because it is considered a regular inter-state supply.
- If the SEZ supplies goods or services or both to Domestic Tariff Area (DTA), then it will be considered as an export to DTA which is considered as an exemption for the SEZ. The person who is receiving these supplies in DTA will be liable to pay customs duties and other import duties.
The Fresh Challenges for The SEZs with the Introduction of GST
From the SEZs across India, thousands of units are functioning smoothly. But with the introduction of GST, these units would be facing fresh challenges.
- Under the GST regime, there are chances that these units might not enjoy exemption from Central Sales Tax, Services Tax, and in some cases, Value Added Tax (VAT).
- At present, goods or services or both provided by the unit operating from SEZ to business in Domestic Tariff Area (DTA) is considered as an import. When the sale is done from SEZ to DTA, the Basic Customs Duty (BCD) and Countervailing Duty (CVD) will be imposed on such a sale.
- Countervailing Duty (CVD) and Special Additional Duty (SAD) are already set to be included in GST. And on such supplies made from SEZ, the Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST) will be charged.
- The credit of the IGST will be available with the buyer and the reason for the buyer to have the credit of IGST is to set off against the liability of CGST and SGST which are subject to the prescribed conditions.
The Importance of E-Way Bill in SEZ Under GST
- Under the GST Act, goods above Rs. 50,000, can be transported from one place to another. For the transport of goods, the transporter needs an e-Way Bill.
- SEZ supplies are similar to inter-state supplies. The E-Way Bill procedure of inter-supply of goods should be followed by SEZ Units.
- If SEZ supplies goods to a DTA or anyone else then the E-Way Bill has to be generated by the registered person.
An example to make it clearer: SEZ unit named X industries is located in Kolkata. Y located in Chennai receives the X manufactured goods. The value of transported goods by X industries is Rs. 80,000. IGST is applicable on this transport of goods as it is an Inter-state supply.
The Benefits and Exemptions from GST For SEZ Operators.
- From the GST, supplies into SEZ would be exempted. And it would be treated as export outside India.
- Easy Refund Procedure of input GST paid on obtaining Goods and Services if any.
- There would be minimalistic Compliance Requirement and Return Filing Procedure.
- Under the GST Law, exports continue to remain zero and a similar advantage continues to be given to the SEZs.
As per Section 16 of the IGST Act, on the supply of all goods and services, there would be zero-rated supply, which means; The supply can be done in the form of export and it can be supplied to the Special Economic Zone developer or a Special Economic Zone. According to Section 17, sub-section (5) of the Central Goods and Services Tax Act, for making zero-rated supplies, credit of input tax can be availed, however, such supply can be exempt.
- If a zero-rated supply is made by a registered person, then he is eligible to claim the refund.
- The SEZ supplies Goods and services, and Integrated Goods and Service Tax (IGST) is applicable on it.
- IGST is exempted, when goods and services from SEZ are supplied to the Domestic Tariff Area (DTA). Customs duties and other import duties are to be paid by the person receiving these DTA Supplies
- There is zero tax rate under GST on any goods and services and due to this reason, supplies into SEZ are considered as export and are exempted from GST.