NOVEMBER 01, 2017

By Kalirajan, Adv.

IT was recommended by the GST Council in its 22 nd meeting that Merchant exporters should be allowed to procure goods for export on payment of nominal GST @ 0.1%. In line with the said recommendation, the Central Government has issued three notifications dated 23.10.2017 under various GST laws enacted by the Central Government.

The Notifications dated 23.10.2017 exempt the inter-State and intra-state supply of taxable goods by a registered supplier to a registered recipient for export, from so much of the GST leviable thereon, as is in excess of the amount calculated at the rate of 0.1/0.05 per cent., as the case may be. The said notifications prescribe the conditions and procedures to be followed for availing aforesaid concessional rate of GST.

The procedures prescribed under the said Notifications dated 23.10.2017 are akin to the Notification No. 42/2001-C.E., dated 26.06.2001 relating to removal of goods for export without payment of duty by the manufacturer exporter and the merchant exporter.

Now the question is whether the aforesaid facility of procurement of goods at concessional rate of GST is applicable only for export of goods out of India or is it also applicable for supplies to SEZ also.

It is evident that the concessional rate of GST provided is for procurement of goods for export. The terms ‘Export of goods' as defined under Section 2(5) of the IGST Act means taking goods out of India to a place outside India. However, there is an overriding legislation called, the SEZ Act, 2005, which includes the supplies to SEZ under the scope of exports.

Exports as per the SEZ Act

As per Section 2(m) of the SEZ Act, 2005 export inter alia means supplying goods or providing services from the DTA to SEZ Unit or SEZ Developer. Moreover, in terms of Section 53 of the SEZ Act, a SEZ shall be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations. As per Section 51 of the SEZ Act, in case of conflict between the provisions of any other legislation and the SEZ Act, it is the SEZ Act which has overriding power.

Similar situation had arose when the Central Government inserted meaning of ‘Export goods' into Rule 5 of the Cenvat Credit Rules, 2004 (in short 'the CCR') and the Rule 18 of the Central Excise Rules, 2002 (in short 'the CER '). In terms of said amendment ‘Export goods' meant only goods which are to be taken out of India to a place outside India . It was identical to the meaning of ‘export of goods' provided under the IGST Act. Since it specifically mentioned taking goods out of India, there was an ambiguity on claiming refunds for supplies to SEZs.

Taking clue from the various provisions of SEZ Act, the CBEC vide Circular No. 1001/8/2015-CX dated 28.04.2015 clarified that since SEZ is deemed to be outside the Customs territory of India, any licit clearances of goods to an SEZ from the DTA will continue to be export and, therefore, be entitled to the benefits provided under the Rule 18 of CE Rand the Rule 5 CCR, 2004, as the case may be. Relevant portion of the circular reads as follows.

"3. It can thus be seen that according to the SEZ Act, supply of goods from DTA to the SEZ constitutes export.Further, as per section 51 of the SEZ Act, the provisions of the SEZ Act shall have over riding effect over provisions of any other law in case of any inconsistency.Section 53 of the SEZ Act makes an SEZ a territory outside the customs territory of India.It is in line of these provisions that rule 30 (1) of the SEZ rules, 2006 provides that the DTA supplier supplying goods to the SEZ shall clear the goods either under bond or as duty paid goods under claim of rebate on the cover of ARE-1.

4. ………………Since SEZ is deemed to be outside the Customs territory of India, any licit clearances of goods to an SEZ from the DTA will continue to be export and therefore be entitled to the benefit of rebate under rule 18 of CER, 2002 and of refund of accumulated CENVAT credit under rule 5 of CCR, 2004, as the case may be."

Clues in the GST Notifications

Bill of Export is the document prescribed under the SEZ Rules for supply of goods to a SEZ Unit or Developer with the claim of any export entitlements and it is a documentary proof prescribed under the CGST Rules to prove the supply of goods to a SEZ Unit or Developer. Various conditions prescribed under the GST Notifications dated 23.10.2017 also have reference of Bill of Export as follows.

Condition No. iii - The registered recipient shall indicate the GSTIN of the registered supplier and the tax invoice number issued by the registered supplier in respect of the said goods in the shipping bill or bill of export, as the case may be;

Condition No. ix - When goods have been exported, the registered recipient shall provide copy of shipping bill or bill of export containing details of GSTIN and tax invoice of the registered supplier along with proof of export general manifest or export report having been filed to the registered supplier as well as jurisdictional tax officer of such supplier.

It follows from the above that the benefit of concessional rate of GST @ 0.1% provided to the Merchant Exporter will also be applicable to supplies of goods to the SEZ. However, due to the express wordings in the notifications regarding export and also absence of clarification similar to Circular No. 1001/8/2015-CX dated 28.04.2015 availing benefit of concessional rate of GST for supplies of goods to SEZ may be disputed at the field level. In order to avoid such unnecessary disputes, the Board may at the outset issue appropriate clarification on this point and avoid any inconsistent interpretation by the field formations.