In the past 2 decades, India had witnessed rapid development in cross-border business transactions and foreign investment. A special economic zone is an area which is designated by the government for eligible business units to carry on their operation with tax benefits. In order to promote exports and achieve a favourable trade balance between imports and exports, the government of INDIA offers various tax benefits and concessions to eligible units in SEZ.
Domestic tariff area (DTA) means all areas including territorial waters but does not include SEZ.
Supply of Goods or services to SEZ
- SEZ is considered a separate territory outside India for tax purposes, therefore GST act had specifically put forward that DTA supplies to SEZ units are taxed at 0 %, that is if a DTA supplies goods to ZOHO located in DLF IT SEZ it is considered zero-rated supply and normal tariff rates do not apply
- The registered supplier can supply to SEZ without payment of tax / LUT or with payment of tax and can claim a refund later.
- As the supplies to SEZ are considered interstate, it is mandatory under section 24 to apply for GST registration
- supplies made to SEZ are ZERO-RATED SUPPLY and not EXPORTS in terms of section 11 of the 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 shall be treated as imports
- All procedures under the customs act applicable to imports are applicable with some benefits
- Valuation will be based on customs rules and not as per the GST act
- If goods supplied to the DTA unit are 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 are applicable.
- In case of resale of goods purchased from the 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
- Letter of undertaking (LUT) shall be applied by all registered persons who do not have any pending action by the department with tax/duty/penalty for an amount more than two crore fifty lakhs.
- In case Any action is pending by the department where the duty/tax amount is the above-prescribed limit, the registered dealer shall furnish a bond along with a bank guarantee at 15 % of the bond value.
- LUT is valid for the financial year
- A Self Declaration is filed and if not approved within 3 working days it is deemed to be approved by the officer.
- Bill of export for transport of goods by road, if transported by sea or air execute shipping bill
- As supplies to SEZ are considered a ZERO-rated supplier, can tax input tax credit as applicable?
- When Goods are supplied by SEZ to DTA, the goods shall be supplied along with the Bill of entry.
Commercial transactions with SEZ will be lucrative in terms of profit, but however, it should be kept in mind that multiple departments and acts are involved in the case of these dealings. Documentation and time of preparation of those documents are most important in this case and should be properly followed with the support and advice of a 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 others.
Procedural aspects like how to file a letter of undertaking and how to file a refund application are not dealt with here for simplicity