NOVEMBER 14, 2017

By Padmasri Manyam, CA

SUPPLIES from Domestic Tariff Area (in short referred as 'DTA') to SEZ unit/developer (in short referred as 'SEZ') shall be considered as 'zero rated supplies' in terms of Section 16 of IGST Act. The procedure and documentation to be followed for zero rated supplies is, to some extent,clear under GST Law.

However, the supplies from SEZ to DTA has some ambiguities insofar as the levy is concerned. This article mainly focusses on such ambiguities.

In terms of Section 7(5) of IGST Act, 2017 supply of goods from SEZ to DTA shall be considered inter-state supply. IGST shall be levied on such inter-state supply of goods or services, by virtue of Section 5 of IGST Act. Accordingly, SEZ unit shall issue tax invoice along with GST.

As per Section 2(10) of IGST Act, 'import of goods' with its grammatical variations and cognate expressions means bringing goods into India from a place outside India. Hence, the goods procured from SEZ unit would not be considered as import of goods.

However, in terms of Section 30 of SEZ Act, the supply of goods by SEZ to DTA shall be considered as import of goods by DTA. Therefore, DTA unit shall file bill of entry and discharge BCD, IGST.

Based on the above said provisions, we can say that there is levy of more than one tax on the same transaction. Now the question is whether the supplier shall be liable to pay IGST twice on the same transaction.

Position under erstwhile law:

At this juncture, let us understand what was the tax treatment under erstwhile law and why there was no ambiguity in terms of levy of tax on supply of goods by SEZ to DTA.

As explained supra, in terms of Section 30 of SEZ act, supply of goods from SEZ to DTA shall be considered as import of goods. Hence, the DTA unit used to file bill of entry and discharge BCD, CVD & SAD.

Further, the Central Excise Duty was not applicable on supply of goods by SEZ to DTA by virtue of Section 3 of Central Excise Act, which excludes the levy of Central Excise Duty on goods produced or manufactured in SEZ. The cascading effect of taxes has been taken care under earlier law through this provision and there was only one levy on supply of goods by SEZ to DTA,under SEZ Act.

Similar provisions are not there under the GST Act. Section 5 of IGST Act (levy section) does not exclude the levy of IGST on supply of goods from SEZ to DTA. Hence, the ambiguity of levy of more than one tax on same transaction would arise.

Present ambiguity:

Now coming back to our question, whether the supply from SEZ to DTA attracts more than one tax i.e. both as per SEZ Act as import of goods and as per IGST Act as inter-state supply?

In terms of Section 51 of SEZ Act, in case of inconsistency between the provisions of SEZ Act and any other law, SEZ Act shall prevail over the other law. Insofar as the present transaction is concerned, the supply of goods by SEZ to DTA is considered as import of goods, in terms of Section 30 of SEZ Act whereas the GST law does not consider the supply of goods from SEZ to DTA as import of goods.

To this extent, there is inconsistency/conflict between the provisions of SEZ Act and GST Act. Hence, SEZ Act shall prevail over GST Law, by virtue of Section 51 of SEZ Act. Accordingly, the supply of goods from SEZ to DTA shall be considered as import of goods in terms of Section 30 of SEZ Act and there should be only one levy under SEZ Act.

DTA unit shall file bill of entry, pay BCD and IGST (similar to import of goods for home consumption).

To avoid ambiguities on taxability of supply of goods by SEZ to DTA, GST Act shall also contain similar provisions which were there in Section 3 of Central Excise Act, 1944.

The provisions of Section 5(1) of IGST Act can be amended to exclude the supply of goods by SEZ to DTA so that there would be one levy of tax in terms of SEZ Act.

Supply of services from SEZ to DTA:

Supply of services by SEZ to DTA shall be considered as inter-state supply in terms of Section 7(5) of IGST Act and the supplier shall be liable to pay IGST on such transactions.

SEZ unit shall issue tax invoice in terms of Section 31 of CGST Act read with Rule 46 of CGST Rules, 2017 along with the applicable amount of IGST as supply of service to DTA.

This is similar to the earlier Service Tax provisions, wherein the SEZ unit was liable to issue tax invoice along with the applicable amount of Service tax.

Conclusion:

The provisions similar to Section 3 of Central Excise Act which excludes the supply of goods by SEZ to DTAneeds to be incorporated even under the GST law to avoid the ambiguities in terms of the levy of tax on such supply of goods by SEZ to DTA.

(The author is an Associate with Lakshmi kumaran & Sridharan, Bangalore and the views expressed are strictly personal.)