Supply to SEZ, Goods and Services Tax - GST

[Ashiesh Prremji]

Dear Experts,

A SEZ unit is registered under SEZ w.e.f Dec 2019 but got GST registration w.e.f April 2021. Although it's compulsory to get GST Registration for SEZ but my query is if any Regular GST Registered person makes supply to that SEZ in March 2021 then how to show such supply in GSTR-1?

Whether it will be B2C or Supply to SEZ? If it's supply to SEZ then can we use GSTIN of that SEZ which Registration is effective from April 21 only.

Please suggest how to deal with such issue?

Posts / Replies

[Shilpi Jain]

Although there is some difficulty in disclosure in the returns, legally speaking it would be a supply to an SEZ. so try using the SEZ registration number obtained in April. Also note that there was a case law under service tax as per which no tax can be levied on services to SEZ merely because some procedural aspects are not fulfilled, since the SEZ act which stipulates no gst on SEZ overrides all other legislations.

[KASTURI SETHI]

I agree with reply of Madam Shilpi Jain.

As per Section 51 of SEZ Act, GST laws or any notification issued under thereunder cannot prevail over SEZ Act. Pl. also go through this Section.

"51. Act to have overriding effect.

(1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act."

[Ashiesh Prremji]

Thanks to both of you for suggestion!

Its really a practical difficulty to show in GSTR-1 if any GST Registered party supplies to Unregistered SEZ .

[Alkesh Jani]

Shri

As per Section 51 of SEZ Act, the SEZ Act has an overriding effect on any other law for the time being in force. This overriding effect is limited only to the laws notified by the Central Government.

Moreover, in view of the provisions of the amended Article 246 of the Constitution, SEZ Act cannot have overriding effect on GST laws. However, unless specific provision is made either in SEZ Act or GST Act to provide overriding effect to SEZ Act, therefore SEZ Act will not override GST Acts. The SEZ Act, is of 2005.

Whereas, SEZ unit or developer is an distinct person and is within Indian territory, and supply to SEZ unit will not qualify the the definition of 'Export" as per GST Act . The time of supply is when SEZ unit was not a registered under GST. Therefore, I am of the view that it should be shown as B2C.

[KASTURI SETHI]

(1) As per Section 51 of SEZ Act, the SEZ Act has an overriding effect on any other law for the time being in force. This overriding effect is limited only to the laws notified by the Central Government.

(2)Moreover, in view of the provisions of the amended Article 246 of the Constitution, SEZ Act cannot have overriding effect on GST laws. However, unless specific provision is made either in SEZ Act or GST Act to provide overriding effect to SEZ Act, therefore SEZ Act will not override GST Acts. The SEZ Act, is of 2005.

(3)Whereas, SEZ unit or developer is an distinct person and is within Indian territory, and supply to SEZ unit will not qualify the the definition of 'Export" as per GST Act . The time of supply is when SEZ unit was not a registered under GST. Therefore, I am of the view that it should be shown as B2C.

Dear Alkesh Jani Ji,

(i) I agree with your logic and reasoning at point no.1 above.

(ii) I am unable to digest your logic or reasoning at point no 2. ":The SEZ Act will not override GST Acts on the ground that this Act came into force in the year 2005" cannot be the basis by any stretch of imagination. How amended Article 246 negates the overriding effect SEZ Act ? Pl. clarify for enrichment of my knowledge.

(iii) How the supply to SEZ Act does not qualify as 'Export' under IGST Act ? How such supply to SEZ is 'B' to 'C' ? This needs more elaboration for further clarity.

Pl. reply.

[Alkesh Jani]

Shri Kasturiji Sir,

The fact is you are illuminating and live manual available with us. As a obedient pupil, the query raised by you is taken as command and following efforts is made.

(1) We both agree

(2) By THE CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016, the Section 246A was inserted which reads as under:-

“2. After article 246 of the Constitution, the following article shall be inserted, namely:-

"246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. …”

The SEZ Act, 2005, was enacted in the year 2005 which is in the list of Union List.

The article 246A starts with “Notwithstanding anything contained in article 246”, this nullifies the overriding effect of SEZ Act, over GST Act. Therefore, special provisions are required to make either in SEZ Act or GST Act.

(3) The supply of goods or services or both is “inter-state” supply in terms of Section 7 of IGST Act, 2017. Moreover, the supplies made to SEZ Unit/Developer is “Zero rated supply” in terms of Section 16 of IGST Act. The definition of Export is given at Section 2(5) of IGST Act is reproduced below:-

“(5) ―export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;”

On going through the above definition, it is clear that goods are not taken out of India (Indian territory), so the supply of goods to SEZ unit is required to be treated as “Inter-State” Supply and not Export and IGST is leviable although within the same state.

Further, in the instant case, when goods were supplied in March, the unit which is registered under GST from April and was not registered nor recognized as SEZ unit under GST. The supplier who is registered under GST is required to declare the supply to SEZ bearing GSTIN, which was not available at the time of supply. So for the supplier, it is supply to unregistered person. as it is obligatory on the part of supplier to adhere to GST Provisions.

Shri Kasturiji Sir, the above reply is the best of all I have.

Thanks

With Due Regards

[KASTURI SETHI]

Dear Alkesh Jani Ji, I fully agree with you with all your point-wise replies. That is why I always say I never hesitate to learn from you (youngsters) I am overwhelmed with your love, respect and affection. I am indebted to you for your such inspirational, motivational, disciplined nature towards me. It has created a niche in my heart for you. With love affection and regards. K. L. Sethi

[YAGAY SUN]

The SEZ Act and Rules overrides on Customs Laws but not on GST Laws.