GST on Special Economic Zones (SEZs)

Tally Solutions |Updated on: December 9, 2022

• What is SEZ?
• GST treatment on supply to and from SEZ
• Key features of GST for SEZ
• e-Way bill rules for SEZ

What is SEZ?

Special Economic Zone (SEZ) is considered separate from the other areas in the country. It refers to areas where the economic regulations are different from the rest of the country.

SEZs differ from other areas as they have simpler tax regimes and comparatively easier compliance rules to follow. Conducting business with an SEZ comes with benefits when compared to conducting business in other areas. The reason for implementing SEZs was simply; to fuel economic growth with support at the state and center levels. SEZs generate increased economic activity, promote investment from various sources (domestic and foreign), and promote exports of both goods and services. SEZs also improve employment and fuel the development of infrastructure in the country.

GST treatment on supply to and from SEZ

The supply to and from SEZ is termed as import and export because SEZs are considered separate territories.

• When you are transporting goods or services from any place in India that is not an SEZ to a location that falls under SEZ then it is considered an export.
• If an SEZ supplier decides to supply goods or services to another SEZ supplier, then it is also considered an export.
• When the goods or services or both are transported to an SEZ from a location that is not under the SEZ, it is termed an import.
• When one SEZ receives goods or services or both from another SEZ, then it is considered an import.
• When the supply to or from SEZ is done, it is considered an inter-state supply.

Let us say one SEZ unit is located in Delhi. Supplies from this SEZ unit to a vendor located in Gujarat are considered inter-state supplies. Similarly, supplies from the vendor in Gujarat to the SEZ unit in Delhi are considered inter-state supplies. As per the GST rules, Integrated Goods and Service Tax (IGST) will be applicable in such cases.

Key features of GST for SEZ

The features of GST on special economic zones are as follows:

• When goods or services or both are moved to the SEZ, the movement will be considered a zero-rated supply because such goods and services fall under the export category. Zero-rated supplies mean GST does not need to be paid in the entire value chain.
• When supply from an SEZ is being done to others, it is considered an inter-state supply, and the IGST will be payable at the normal rates as specified in GST.
• A supplier can transfer goods or services or both to the SEZ under the letter of undertaking (LUT) or bond. This eliminates the need to pay IGST, and the supplier is eligible to claim the input tax credit (ITC).
• A supplier can transfer goods and services to an SEZ while also paying IGST and then claim the refund for the tax paid.
• The reverse charge is applicable when an SEZ supplies goods or services or both to the domestic tariff area (DTA). The receiver of the supply in DTA will be responsible for paying the tax such as customs duties and import duties. This is because such a type of transaction is considered an export to the DTA.

e-Way bill rules for SEZ

• When goods are being moved from one place to another, an e-way bill is mandatory under the GST rules and regulations when the consignment value is more than Rs. 50,000. This is because the supplies from an SEZ are considered the same as inter-state supplies.
• The e-way bill must be generated by a registered person when the supply is made to him or from him.
• If the supply is made to a registered person from an unregistered person, then the e-way bill must be generated by the receiver as if he is the supplier.
• If the supplier does not generate the e-way bill, then the transporter who is carrying the goods must generate an e-way bill.
• If the movement of goods and services is from the SEZ to a DTA then the e-way bill must be generated by the registered taxpayer who is responsible for the transaction taking place.
• The validity of an e-way bill is one day for SEZs if the travel distance is up to 200 km. If the travel distance is longer, the validity is increased to two days. It is possible to extend the validity of the e-way bill.

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