Clarification regarding payment of GST by a unit in International Financial Services Centre SEZ for procurement of input service on which GST is payable on reverse charge basis. - GST - F. No. 334/335/2017-TRU

F. No. 334/335/2017-TRU Ministry of Finance Department of Revenue (Central Board of Excise and Customs) (Tax Research Unit) ******** Dated: 18.12.2017 Subject: Clarification regarding payment of GST by a unit in International Financial Services Centre SEZ for procurement of input service on which GST is payable on reverse charge basis - reg. Kind reference is invited to the representations dated 12.10.2017 seeking clarification on whether for input services such as legal services, sponsorship services etc received by a unit in International Financial Services Centre [IFSC] SEZ from a unit in domestic tariff area which are chargeable to GST on reverse charge basis, GST is payable by the unit in IFSC SEZ, receiving such services. 2. The matter has been examined. Under notification No. 13/2017-CT(Rate) , legal service, sponsorship service etc. are chargeable to GST on reverse charge basis and the recipient of the service is liable to pay GST. However, under notification No. 37/2017-Central Tax , a unit in domestic tariff area can supply goods and services to a unit in SEZ or to SEZ Developer without payment of integrated tax subject to furnishing of Letter of Undertaking to the jurisdictional Commissioner. In case a unit has been prosecuted for any offence under the CGST or IGST Acts or any other existing law in force where the amount of tax evaded exceeds two hundred and fifty lakh rupees, a Bond with suitable bank guarantee instead of Letter of Undertaking is required. This facility is available to the supplier of goods or services who is required to pay integrated tax under forward charge for the supplies. In case of services covered in notification No. 13/2017-CT(Rate) , as per section 5(3) of the IGST Act , recipient of service is the deemed supplier and is required to pay the integrated tax. A unit in SEZ or SEZ developer is deemed supplier of service, though is the actual recipient of service. Moreover, the said unit in SEZ or SEZ developer is allowed to import services for authorized operations from offshore without levy of IGST under notification No. 8/2017-Integrated Tax (Rate) dated 05.07.2017 . 3. Since the intention of the Legislature is not to tax supplies to a unit in SEZ or a SEZ Developer which have been zero rated under clause (b) of section 16(1) of the IGST Act , by virtue of deeming provision under section 5(3) of the IGST Act, 2017 , levy for procurement of input services specified under notification No. 13/2017-CT(Rate) falls upon the unit in SEZ or the SEZ developer. It is, therefore, clarified that a unit in SEZ or the SEZ developer can procure such services, where they are required to pay GST under reverse charge, without payment of integrated tax provided the actual recipient, i.e., unit in SEZ or SEZ developer, furnishes a Letter of Undertaking in place of a bond as specified in condition no (i) in para 1 of notification No. 37/2017-CT . The actual recipient of service is the deemed supplier / registered person for the purpose of fulfilling other conditions in para 1 of the notification ibid including the manner of furnishing of Letter of Undertaking. 4. The above provisions shall apply mutatis mutandis in respect of supply of services covered under notification No. 13/2017-CT(Rate) to a unit in International Financial Services Centre, SEZ. 5. This has the approval of the Secretary (Revenue). (Pramod Kumar) OSD (TRU II) Sh. Dipesh Shah Head (IFSC Strategy) Gujarat International Finance Tec-City Co. Ltd. Zonal Facility Centre, Block -12/Road 1-D, Zone-I GIFT CITY, Gandhinagar 382355, Gujarat, India.