Friends!
Under export and import policy
of goods and services, Special Economic Zones (hereinafter referred to as SEZ)
have been visualized as foreign territories within India. For this purpose,
Union has enacted Special Economic Zones Act, 2005 (hereinafter referred to as
the SEZ Act).
The Scheme of the SEZ Act,
ensures that no tax be levied in the following cases:
(i)
When goods or services are procured by SEZ units
or SEZ developers from outside India as a result of import into the SEZ. (A
transaction in between foreign country and deemed foreign territory in India) ;
(ii)
When goods or services are procured by SEZ units
and SEZ developers from Domestic Tariff Area (DTA) into SEZ (A transaction in
between Indian Territory and deemed foreign territory in India);
(iii)
When goods or services are procured by SEZ units
and SEZ developers from any SEZ unit of the same SEZ (A transaction in between
two entities of deemed foreign territory); and
(iv)
When goods or services are procured by SEZ units
or SEZ developers of one SEZ from any SEZ unit of some other SEZ. (A
transaction in between two deemed foreign territories).
(v)
Taking goods, or providing services, out of
India, from a SEZ (A transaction in between deemed foreign territory and a
foreign country).
For achieving aforesaid objects,
"export" and "import" have been defined respectively in
clauses (m) and (o) of section 2 of the SEZ Act as follows;
(m) “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;
(o) “import” means-
(i)
bringing goods or receiving services, in a
Special Economic Zone, by a Unit or Developer from a place outside India by
land, sea or air or by any other mode, whether physical or otherwise; or
(ii)
receiving goods, or services by, Unit or
Developer from another Unit or Developer of the same Special Economic Zone or a
different Special Economic Zone;
Here we see that only one
transaction related to SEZ has not been covered under export or import. This
transaction is supply of goods or services by SEZ unit to any DTA unit or
procurement of goods or services by DTA unit from SEZ unit.
Section 7 of the Act runs as
follows:
7.
Exemption from taxes, duties or cess.
Any goods or services exported out of, or
imported into, or procured from the Domestic Tariff Area by, -
(i)
a Unit in a Special Economic Zone; or
(ii)
a Developer;
shall, subject to such terms,
conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess
under all enactments specified in the First Schedule.
A reading of First Schedule of the
SEZ Act reveals than it does not have mention of any GST Act (CGST Act, SGST
Act or IGST Act). Therefore, for providing exemption, in respect of export and
import transactions, referred to in clauses (m) and (o) of section 2 of the SEZ
Act, from levy of GST, the GST Act should itself recognize SEZ and should have
provisions for granting exemption from levy of GST.
Here I would like to point out that
each SEZ is located within some State or Union Territory and the Constitution
permits each State Legislature to make law for its State including a law
providing for levy and collection of tax on goods and services. But the
Constitution does not permit a State to levy tax on supply of goods and
services where such supply takes place -
(i)
in the course of inter-State trade or commerce.
(Clause (2) of article 246A );
(ii)
outside the State (sub-clause (a) of clause (1)
of article 286);
(iii)
in the course of import into the territory of
India, (sub-clause (b) of clause (1) of article 286); and
(iv)
in the course of export out of the territory of
India, (sub-clause (b) of clause (1) of article 286);
However,
the Union Government, while defining "intra-State supply" in section
8 of the IGST Act, has excluded "supply of goods to or by a
Special Economic Zone developer or a Special Economic Zone unit" from the
scope of intra-State supplies. Such supplies also include supplies in relation
to which supplier of goods and services and place of supply of such goods and
services are located within a State. In clause (b) of sub-section (5) of
section 7 of the IGST Act, a provision has been made that such supplies shall
be treated to be supplies in the course of inter-State trade or commerce. My
opinion is that inclusion of supplies, which are of intra-State nature, in the
IGST Act, is without Constitutional Authority. Supply by SEZ unit to DTA unit
has been made liable to tax under the IGST Act. Earlier to GST, States have
been dealing with such transactions.
So
far as it is related to providing exemption from tax on supplies to or by SEZ
units or developers, following provisions have been made:
(i)
In respect of import of goods into the territory
of India, a Notification No. 64/2017-
Customs dated 5th July, 2017 has been issued by the Government of India, as
follows:
" G.S.R.---- (E).- In exercise of the powers conferred by
sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the
Central Government, on being satisfied that it is necessary in the public
interest so to do, hereby exempts all goods imported by a unit or a developer
in the Special Economic Zone for authorised operations, from the whole of the
integrated tax leviable thereon under sub-section (7) of section 3 of the
Customs Tariff Act, 1975 (51 of 1975) read with section 5 of the Integrated
Goods and Service Tax Act, 2017 (13 of 2017)."
(ii)
In sub-section (1) of section 16 of
the IGST Act, supplies, of goods or services or both, to SEZ unit or SEZ
developer have been included in zero rated supplies and in the same section,
provision for allowing refund, of amount of input tax credit and amount of tax,
if any deposited on such supplies, has been made. such supplies covers
following supplies:
(a) Supply by DTA unit to SEZ unit or SEZ developer;
(b) Supply made by unit or developer of one SEZ to any unit or
developer of same SEZ;
(c) Supply, made by unit or developer of one SEZ to unit or
developer, to SEZ unit or SEZ developer of some other SEZ located either within
the State of supplier or in some other State.
(iii)
In sub-section (1) of section 16 of
the IGST Act, export of goods or services or both has been included in zero
rated supplies and in the same section, provision for allowing refund, of
amount of input tax credit and amount of tax, if any deposited on such
supplies, has been made.
In view of
the discussion above, SEZ unit is liable for payment of CGST & SGST where
it makes supply of goods or services or both to any person located outside the
SEZ and within the State in which SEZ is located and SEZ unit or SEZ developer
is required to pay IGST on supply of goods or services or both to any person, except SEZ unit or SEZ developer, where place of such supply falls in any other
State.
