JULY 14, 2018

By K Srinivasan, IRS

IN an Advance Ruling No. KARADRG-2/2018 dated 21st March, 2018 issued for GOGTE Infrastructure Development Corporation Ltd, reported at  2018-TIOL-29-AAR-GST, the question of whether the Hotel Accommodation and Restaurant Services provided within the premises of the Hotel to employees and guests of SEZ unit is to be treated as supply of goods and services to SEZ units was raised.

The Authority for Advance Ruling (AAR) held vide Section 16(1)(b) of the IGST Act and Rule 46 of CGST Rules read together, it is clearly evident that the supplies of goods or services or both towards the authorized operations only shall be treated as zero rated supplies to SEZ developer / SEZ Unit.

Otherwise, supplies to SEZ by way of Accommodation Service and Restaurant service is an intra-state supply.

Section 16 of IGST Act does not make any limitation of supplies of goods or services only for authorized operations to SEZ developer or SEZ Unit.

Further, the AAR also held that the place of supply of services by way of lodging accommodation by a hotel shall be the location at which the immovable property is located or intended to be located, under Section 12(3)(b) of the IGST Act.

The AAR held that Hotel Accommodation and restaurant services provided to SEZ developers or units are intra state supplies (CGST/SGST applicable) and are taxable accordingly.

Supplies made to SEZ have been discussed under Section 7 and Section 8 of the IGST Act. Section 7(5) of the IGST Act states that supply of goods or services or both,  to or by a SEZ developer or a SEZ unit  shall be treated to be a supply of goods or services or both  in the course of interstate trade or commerce.

Section 8(1) of the IGST Act states that, subject to provisions of Section 10 (Place of supply of goods other than supply of goods imported into, or exported from India)  supply of goods  where the location of supplier and the place of supply of goods are in the same state shall be treated as an intra-state supply, provided supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit  shall not be treated as intra-state supply.

The Government in a quick move to set right the anomaly created by the AAR purportedly issued Circular No. 48/22/2018-GST dated 14-06-2018 which clarifies that the services of short term accommodation, conferencing, banqueting, etc., provided to a SEZ unit/developer  is an inter-state supply.

The Circular also states that zero rated supply benefit is available to the supplier if the SEZ unit/ developer receive the goods / services for Authorized Operations.

Whether services of short-term accommodation, conferencing, banqueting service etc. provided to a Special Economic Zone (SEZ) developer or a SEZ unit should be treated as an inter-State supply (under section 7(5)(b) of the IGST Act, 2017) or an intra-State supply (under section 12(3)(c) of the IGST Act, 2017)?

As per section 7(5) (b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act in short), the supply of goods or services or both to a SEZ developer or a SEZ unit shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

Whereas, as per section 12(3)(c) of the IGST Act, the place of supply of services by way of accommodation in any immovable property for organizing any functions shall be the location at which the immovable property is located.

Thus, in such cases, if the location of the supplier and the place of supply is in the same State/ Union territory, it would be treated as an intra-State supply.

It is an established principle of interpretation of statutes that in case of an apparent conflict between two provisions, the specific provision shall prevail over the general provision.

In the instant case, section 7(5)(b) of the IGST Act is a specific provision relating to supplies of goods or services or both made to a SEZ developer or a SEZ unit, which states that such supplies shall be treated as inter-State supplies.

It is therefore, clarified that services of short-term accommodation, conferencing, banqueting etc., provided to a SEZ developer or a SEZ unit shall be treated as an inter-State supply.

In this connection, Section 103 of the CGST Act states that the Advance Ruling pronounced by the Authority or the Appellate Authority shall be binding on the applicant, unless the law, facts or circumstances supporting the ruling have changed.

In this case, a circular was issued which is contrary   to what the Authority has held, despite the law and circumstances remaining the same.

Should we take that the circular as part of the Law in the form of an Explanation, is potent to change the Law and hence the ruling is no longer applicable even to the applicant.

What will be the validity of all such circulars to be issued if any after the advent of each such conflicting decision of the AAR with the Central/State Laws of GST?

What is the established principle of interpretation that in case of a conflict apparent on the face of Law, between two establishments i.e. the Ministry of Finance, namely the CBIC and the present Authority for Advance Ruling (AAR) under the GST Law?

Whether decisions of the Former will prevail over the latter, is the critical question in the above situation.

In this situation, what is the advice to the tax payer?

Whether to follow the Advance Ruling or to follow the circular?

The rest of the Country is sure to follow the Circular.

If a particular person/s to whom, alone the ruling is applicable, follows the AAR, he is in trouble with the nature of tax.

If he does not follow the AAR, he is in trouble of not following the order of the Government.

If the Government does not follow the ruling without attempting to cure the same with its circulars perhaps, it will be equally in trouble one would think.

Both appear to be between-the-devil-and-the-deep-sea, kind of situation to describe precisely the predicament.

As per Section 100 of the Act, the Government itself needs to be impleaded in an appellate proceeding if aggrieved before an AAR for redressing its own legal grievance.

Sadly, the Government has not yet come up with a centralized AAR with a proper mix of Technical and Judicial Members to put the provisions properly to the wet stone of trials based on facts of each case independent of the others, though.

Such a quick step, may by long experience of enduring Legal disputes may mitigate he flurry of contradictory views of the present set up of AAR triggering both insoluble and embarrassing questions of Law for the Government, is the humble view of the Author.

(The author is Assistant Commissioner, GST, Chennai & Master Trainer, GST.  The views expressed are strictly personal.)