GST-SEZ 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 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 taxes 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 LokSabha has settled 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 unutilized 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 6(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.

UNDERSTANDING SPECIAL ECONOMIC ZONE A special economic zone (SEZ) is a dedicated zone wherein businesses enjoy simpler tax and legal compliance. SEZs are located within a country’s national borders, however, they are treated as a foreign territory from taxability perspective. As per the legal definition, A Special Economic Zone (SEZ) is a geographically bound zone where the economic laws relating to export and import are more liberal as compared to other parts of the country. Within SEZs, a unit may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewelry etc. SEZ units are considered to be outside the customs territory of India. All supplies made to a unit operating in SEZ are considered as Export out of India. Goods and services rendered from SEZ to normal territory is considered as Import of such goods or services. Some of the incentives and facilities available to SEZ developers include: Exemption from customs/excise duties for development of SEZs for authorized operations approved by the Board Of Approval. Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act. Exemption from dividend distribution tax under Section 115O of the Income Tax Act. Exemption from Central Sales Tax (CST). Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

SOME OF THEIR KEY OBJECTIVES INCLUDE: Increase in Foreign Trade by promotion of exports of goods and services Increased Foreign Investment Domestic Job creation and; Effective Administration and Compliance Procedures. Better Infrastructure Facilities To promote entrepreneurs to set up units in these Economic Zone, various attractive financial policies have been established. These policies include promotional offers and simplicity in investing, taxation, trading, quotas, customs and labor regulations. Moreover, units set up in these zones are offered special tax holidays. Impact of GST on SEZ The term special economic zone can further include: Free trade zones (FTZ) Export processing zones (EPZ) Free zones/ Free economic zones (FZ/ FEZ) Industrial parks/ industrial estates (IE) Free ports Bonded logistics parks (BLP Urban enterprise zones

Impact of GST on Special Economic Zone As of today, thousands of units are operating from these SEZs across India. These units are now set to face fresh challenges with the introduction of GST. While these units are enjoying exemption from Services Tax, Central Sales Tax and in some cases Value Added Tax (VAT), this may not be the case under GST regime. Currently, all Goods and Services provided from a unit operating from SEZ to a business in Domestic Tariff Area (DTA) is considered as an import. Accordingly, Basic Customs Duty (BCD) and Countervailing Duty (CVD) are levied on such sale from a SEZ to DTA. GST is already set to subsume CVD and SAD, thus going forward BCD and Integrated Goods and Services Tax (IGST) will be charged on such supplies made from SEZ. Also, the buyer will have the credit of IGST available to set off against the liability of CGST and SGST subject to prescribed conditions.

Minimalistic Compliance Requirement and Return Filing Procedure Some of the benefits and exemptions that SEZ operators are eying from GST are: Supplies into SEZ to be exempt from GST and be treated as export outside India Easy Refund Procedure of input GST paid on procurement of Goods and Services if any. Minimalistic Compliance Requirement and Return Filing Procedure