SEZ Update: Upfront exemption introduced under GST Law for SEZ Units/ Developers
Dated 28th March, 2017
A big debate surrounding the Special Economic Zone (SEZ) Units/ Developers after model GST Law was released in November 2016 was whether up-front exemption from payment of taxes enjoyed by SEZ unit/ developer would continue under Goods and Services Tax (GST).
Under GST, concept of zero rated supply was introduced (Read: Detailed know-how of concept called ‘Zero rated supply’) wherein supply of goods or services as exports or to a SEZ Unit/ Developer would qualify as “zero rated supply” under GST. How the language of the November draft was worded, it appeared that no upfront exemption would be available and SEZs would have to look for refund of taxed paid by them. Not to forget that any supply to or by SEZ Unit/ Developer will be subject to IGST.
However, IGST Bill introduced in Lok Sabha today have seemed to settle the ambiguity by look of Section 16(3) of IGST Bill.
Section 16 (3) of IGST Bill reads as:
A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:––
(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied,
in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.
From perusal of the aforementioned section, it is clear beyond any doubt that under Section 16(3) option to supply goods or services to SEZs without levying GST but subject to such conditions, safeguards and procedure as may be prescribed has been restored.