2018 (8) TMI 875 - AAR - GST

Supplies to SEZ - non-alcoholic beverages - input tax credits relating to SEZ supplies - Whether supply of non-alcoholic beverages to SEZ units using coffee vending machines is in the nature of zero rated supply as defined under Section 16 of the IGST Act 2017? - Held that - Each SEZ Unit is allowed to carry out predefined activities (termed as authorised operations ) to be eligible to avail the benefits of being in the Special Zone. The activities to be carried out have, therefore, to be strictly in consonance with the authorized operations certified by the proper office of the SEZ. Though the IGST Act, in Section 16(1)(b) does not categorically say that the supplies of goods and services should be for authorized operations, it is implicit therein when it says that the supplies are for the SEZ Developer or SEZ Unit. Therefore the litmus test for any supply to be termed as zero-rated supply is to ascertain essentially whether it is for authorized operations or not. The sine qua non or indispensible element is that the supply has to be certified by the proper officer as constituting authorized operations. Benefit flowing out from the SEZ Act, 2005, accrues to anyone only when the condition of authorized operations is fulfilled. Therefore even in the event of the IGST Act, 2017, not explicitly using the term authorised operations in Section 16(1)(b), it is implicit that the supply of goods or services or both described in Section 16(1)(b) have to be read as in relation to authorized operations - The applicant has not made out a case that the activity undertaken by them is certified as an authorized operation by the proper officer of the SEZ. The activity undertaken by the applicant does not qualify to be a zero-rated supply. Ruling - The supply of non-alcoholic beverages/ingredients to such beverages, to SEZ units using coffee vending machines by the applicant, do not qualify as zero rated supply, as defined under Section 16 of the IGST Act 2017.

Summary

Issues involved:
1. Whether the supply of non-alcoholic beverages to SEZ units using coffee vending machines qualifies as a zero-rated supply under Section 16 of the IGST Act 2017?

Detailed Analysis:
The applicant, a company supplying non-alcoholic beverages to SEZ units through coffee vending machines, sought an advance ruling on the issue of whether such supplies could be considered zero-rated under the IGST Act 2017. The applicant contended that all supplies to SEZ, regardless of use for authorized operations, are deemed zero-rated supplies. They argued that the provisions of the Act override any inconsistencies with the rules, making them eligible for input tax credit refund. The applicant also claimed entitlement to make supplies under a bond or letter of undertaking as per CGST Rules 2017.

During the personal hearing, the authorized representative emphasized that any supply to SEZ units is zero-rated, allowing for input tax credit refunds or IGST refunds. They argued that the term "any supplies" encompasses all goods and services provided to SEZ units, including beverages and ingredients. They highlighted that separate registration of SEZ units and mentioning SEZ as the recipient in invoices suffices as proof of supply to SEZ.

The Authority for Advance Rulings analyzed the definitions and provisions related to zero-rated supplies, SEZ operations, and authorized activities. They noted that SEZ units must conduct authorized operations certified by the proper officer to avail benefits. Despite the applicant's interpretation of "any supply," the ruling clarified that the term refers to specific categories within Section 16(1) of the IGST Act 2017. The authority highlighted the importance of activities being in line with authorized operations for zero-rated supplies to SEZ units.

Referring to Rule 89 of the CGST Rules 2017, which mandates refunds for supplies certified as authorized operations, the ruling emphasized that the supply must be endorsed by the specified officer as constituting authorized operations. Since the applicant failed to demonstrate certification of their activity as an authorized operation, the ruling concluded that their supplies did not qualify as zero-rated.

In conclusion, the Authority for Advance Rulings ruled that the supply of non-alcoholic beverages and ingredients to SEZ units using coffee vending machines by the applicant did not meet the criteria for zero-rated supply under Section 16 of the IGST Act 2017.