As per Section 2(19) of IGST Act, Special Economic Zone shall have the same meaning as assigned to it in clause (za) of Section 2 of the Special Economic Zones Act, 2005.
The specific clause (za) of Section 2 provides that “Special Economic Zone in GST” means each Special Economic Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone.
It is pertinent to refer clause (i) of Section 2 which defines that “Domestic Tariff Area” means the whole of India but does not include the areas of the Special Economic Zones.
Further, exports defined under Section 2(m) of SEZ Act as “Export” means-
a) Taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or
b) Supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or
c) Supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone.
Section 26 of the SEZ Act grants exemption, to every SEZ Unit and developer, from:
Any duty of customs under Customs Act, 1962 on goods or services imported into or exported from India,
Any duty of excise under Central Excise Act, 1944
Service Tax under Finance Act, 1994
Levy of taxes on sale and purchase of goods other than newspaper
The securities transaction tax leviable under Section 98 of the Finance act, 2004.
Any transaction with or by SEZ Unit or SEZ Developer shall be exempted from any indirect tax law.
Under GST Law only for the purpose of levying GST, SEZ Units are not to be considered as a part of India which means:
1. IGST Exemption:
Any supply to SEZ Unit has been made exempt vide Notification No. 64/2017 – Customs dated 5th July, 2017.
Any supply from SEZ Unit to DTA(Domestic Tariff Area) shall be treated as Imports and would be taxable under Reverse Charge Basis at the end of the recipient. Rest other thing it will be considered as part of India.
Therefore, suppliers of goods or services or both to any recipient in the SEZ can avail the following:
Make supply under bond or LUT without payment of IGST and claim credit of ITC; or
Make supply on payment of IGST and claim refund of taxes paid.
Exports and supplies to special economic zones are “zero” rated as per the IGST Act, 2017. Zero rating means that the entire supply chain of a particular “zero-rated supply” is free of GST. However, in the case of exempted supplies, output alone is exempted and GST is applicable on the input side.
A person having GST registration making a zero-rated supply is eligible to claim GST refund in accordance with the provisions of the CGST Act, 2017. The two options are mentioned below:
Supply of goods or services under Bond or Letter of Undertaking without payment of integrated tax and claim refund of un-utilised input tax credit of CGST, SGST / UTGST and IGST; or
Supply of goods or services with payment of integrated tax and claim of GST refund on tax paid.
To claim GST refund, the following conditions must be satisfied by the taxable person registered under GST:
The person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering the number and the date of shipping bills or bills of export.
The applicant has furnished a valid return in Form GSTR-3 or Form GSTR-3B, once the shipping bill and export general manifest (EGM) is filed and a valid return is filed, the application for refund will be considered complete and refund process will commence.
In case of service exporters, a statement containing the number and date of invoices and the relevant Bank Realisation Certificates or Foreign Inward Remittance Certificates along with the refund claim must be submitted.
Application for refund can be filed for supplies to a Special Economic Zone unit or a Special Economic Zone developer by:
Supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
Supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone.
To claim refund on supply to SEZ, the following documents and information must be submitted:
Proof of receipt of goods or services as demonstrated by the specified officer of the SEZ.
A statement containing the number and date of invoices, the evidence regarding the endorsement SEZ Officer and the details of payment.
A declaration to the effect that the Special Economic Zone unit or the Special Economic Zone developer has not availed the input tax credit of the tax paid by the supplier of goods or services.
Taxable persons making zero-rated supplies will be eligible for a provisional refund of 90% of the claim in terms of CGST Act, 2017. The CGST Rules, 2017 states that the provisional refund is to be granted within 7 days from the date of acknowledgement of the refund claim. An order for provisional refund is to be supplied in Form GST RFD 04 with payment advice in the name of the claimant. The GST provisional refund amount will be electronically credited to the taxable persons bank account mentioned on the GST Portal.
Provisional refunds will not be granted if the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, been prosecuted for any offence under the Act or under an earlier law where the amount of tax evaded.