SEZs await settling of some GST issues

Under the Integrated GST Act, supply of goods or services to SEZ developers or units are zero-rated

It is over a month since the Goods and Services Tax (GST) laws came into effect. And, a number of issues on these relating to Special Economic Zones (SEZs) remain unresolved.

Under Section 16 (1) of the Integrated GST Act (IGST), supply of goods or services or both to SEZ developers or units are zero-rated. Notification 64/97-Cus dated July 5 exempts IGST on all goods imported by such units or developers. Similarly, notification 18/2017-Integrated Tax (Rate) of the same date exempts IGST on all services imported by SEZ units or developers for authorised operations. Rule 10 and 27 (1) of the SEZ Rules, 2006, allow exemptions, drawbacks and concessions on the goods and services allowed to a developer or co-developer or a unit to contractors and sub-contractors appointed by such developer or co-developer or unit. So, it follows that contractors and sub-contractors, too, should get the benefit of zero-rated supplies and exemptions under IGST laws.

But, this still needs to be formally clarified by the Central Board of Excise and Customs (CBEC). It has clarified that Export Oriented Units need not furnish a new letter of undertaking (LUT) or bond for exports, as they would have already furnished a B-17 bond.  However, CBEC has not extended a similar dispensation to SEZ units, although these have furnished similar bonds. So, SEZs are being asked to furnish an LUT or bond before they export their goods or services without payment of IGST.

Supply of goods or services from the Domestic Tariff Area (DTA) to an SEZ are treated as inter-state supplies. For making any inter-state supply, registration is mandatory. A composition dealer cannot make inter-state supplies. So, the SEZ unit or developer has to necessarily procure goods or services only from registered entities. Now, SEZ units or developers are required to make any number of petty purchases of items or services; for example, services of a plumber or purchase of food items or stationery. For these, they will have to look for registered suppliers. Such suppliers have to go through all the compliance procedures under the GST laws for zero-rated supplies, such as furnishing of bonds or claiming of refunds. For giving services without GST payment, small suppliers of services have to furnish bank guarantees and get payment in foreign exchange. These stipulations increase the suppliers’ costs and, consequently, for the SEZ units or developers.

Another issue is on whether for zero-rated supplies from the DTA to an SEZ, a bill of export needs to be filed, even when no export incentives are being claimed. The SEZ Rules, 2006 [Rule 30 (2), 30 (10) etc], say No. However, Rule 96A of the GST Rules, 2017, prescribe the same procedure as applicable for physical exports, such as filing of a shipping bill or bill of export to supplies from a DTA to an SEZ. Also, the GST laws call for bill of export details to be furnished in GSTR-1 returns, as well as Statement 4 annexed to a refund claim in form RFD-01.  So, confusion reigns at the operating levels. The GST laws were, clearly, put in place without much regard to the views of exporters or clarity on the procedures they have to follow. Since then, CBEC has been responding to various queries as and when these come up. Hopefully, it will quickly resolve the problems of SEZ developers and units.

E-mail: tncrajagopalan@gmail.com