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Special Economic Zones--Related Issues under GST

Jyoti Jain

The present write-up aims at discussing issues which are being faced in relation to Special Economic Zone (SEZ) under GST regime.

1. Introduction

SEZ is a special scheme under Ministry of Commerce, as a part of the Government's export promotion strategy. SEZ is a special area, subject to regulations that differ from the rest of the country, mainly to make it favourable for foreign exchange inflow into India. SEZs are governed by the Special Economic Zone Act, 2005 (Hereinafter referred to as the 'SEZ Act'). Section 7 of SEZ Act provides for exemption to all goods or services.

-- exported out of SEZ; or

-- procured from a DTA or foreign suppliers by a SEZ

Further, as per section 51 of the SEZ Act, the provisions of the SEZ Act would have an overriding effect on provisions of any other Act including taxation laws. However, the overriding effect of section 51 of the SEZ Act will not be the case in GST and in case of any conflict between SEZ Act and GST Act, later will prevail. This is because of Article 246A of the Constitution. Article 246A provides powers to Central/State Governments for taxing goods or services notwithstanding anything contained in Article 246 which gives power to enact the SEZ Act.

Supplies made by or to SEZ will now be under the ambit of the Goods and Services Tax Acts, so far as indirect taxes are concerned. The law makers of GST have kept the provisions for the benefits of SEZs by introducing concept of zero-rating for the supplies made to SEZs and also exempting imports of goods or services by SEZ.

2. Registration

SEZs are specially designated economic areas, created with the principal motive to promote exports. There may be instances where an entity have a unit in Domestic Tariff Area (DTA) as well as a unit in SEZ in same State or Union territory. In such case, a question arises to mind as to whether both such units of same entity needs a registration separately under GST.

The answer is definitely a "Yes" as second proviso to section 25 of the Central Goods and Services Act, 2017 (hereinafter referred to as the CGST Act) read with rule 8 of the Central Goods and Services Rules, 2017 (Hereinafter referred to as the Rules) require a person having a unit in a Special Economic Zone or being a Special Economic Zone developer 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 Territory.

This separate registration requirement not only makes the inter-unit supplies taxable even though made without consideration but also increases compliance burden of return filings, audit, assessments, etc.

3. Taxability of supply of goods or services by DTA units to SEZ units

Any supply of goods or services made to or by SEZ unit is treated as inter-State supply in terms of section 7 of the Integrated Goods and Services Tax Act, 2017 (Hereinafter referred to as the "IGST Act") and is subject to levy of IGST. However, in order to provide relief to SEZ units, concept of zero rating has been made applicable for supplies made to SEZ under GST. Zero-rated supply as defined in section 16(1) of the IGST Act, means any of the following supplies of goods or services or both namely :--

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a 3 special Economic Zone unit.**** PLEASE SUBSCRIBE FOR FULL REPORT  ****