GST Rules and regulations for SEZ (special economic zone)

GST on supplies to SEZ

In past 2 decades India had witnessed rapid development in cross border business transactions and foreign investment. Special economic zone is area which is designated by the government for eligible business units to carry on its operation with tax benefits. In order to promote exports and achieve favorable trade balance between imports and exports government of INDIA offering various tax benefits and concession to eligible units in SEZ.

Domestic tariff area (DTA) means all area of Including territorial waters but does not include SEZ.

Supply of Goods or services to SEZ

  • SEZ is considered as separate territory outside India for tax purpose, therefore gst act had specifically put forward that DTA supplies to SEZ units is taxed at 0 %, that is if a DTA supplies goods to ZOHO located in DLF IT SEZ it is considered as zero rated supply and normal tariff rates does not apply
  • The registered supplier can supply to SEZ without payment of tax / LUT or with payment of tax and can claim refund later.
  • As the supplies to SEZ is considered as interstate it is mandatory under section 24 to apply gst registration
  • supplies made to SEZ is ZERO RATED SUPPLY and not EXPORTS in terms of section 11 of IGST ACT.

Supply of Goods or services By SEZ to DTA unit

  • Supply of goods by SEZ to DTA is treated as interstate supplies and IGST is applicable
  • All supplies from SEZ hall be treated as imports
  • All procedures under customs act applicable to imports are applicable with some benefits
  • Valuation will be based on customs rule and not as per GST act
  • If goods supplied to DTA unit is originally supplied by another DTA unit and sold by SEZ without any processing then it shall be treated as re-import and all the procedures and rules applicable for re-import is applicable.
  • Incase of resale of goods purchased from DTA unit to another DTA unit, if the supplier DTA unit had not availed any export benefits and import duty for the goods is 0 % the SEZ can resale the goods to DTA only on the basis of INVOICE.

Other important points regarding SEZ

  1. Letter of undertaking (LUT ) shall be applied by all registered persons who does not have any pending action by department with tax/duty/penalty for amount more than two crore fifty lakhs.
  2. Incase Any action is pending by department where the duty / tax amount is above prescribed limit registered dealer shall furnish bond along with bank guarantee at 15 % of bond value.
  3. LUT is valid for financial year
  4. Self Declaration is filed and if not approved with in 3 working days it is deemed to be approved by the officer.
  5. Bill of export for transport of goods by road, if transported by sea of air execute shipping bill
  6. As supplies to SEZ is considered as ZERO rated supplier can tax input tax credit as applicable.
  7. When Goods are supplied by SEZ to DTA the goods hall be supplied along with Bill of entry.

Commercial transactions with SEZ will be lucrative in terms of profit but however it should be kept in mind that multiple department and act are involved in the case of these dealings. Documentation and time of preparation of those documents are  most important in this case any should be properly followed with the support and advice of knowledgeable gst tax consultant for filing of proper gst return filing for export and import as well as for timely transportation of goods from one place to other.

Procedural aspects like how to file letter of undertaking and how to file refund application is not dealt here for simplicity



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