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The supply of goods from a DTA (Domestic Tariff Area) Unit to an SEZ (Special Economic Zone) is governed by specific provisions under Indian laws, especially under the SEZ Act, 2005, the GST Act, and other relevant regulations. Here’s a detailed overview of the complete procedure, the legal framework, precautions, GST considerations, duty drawback, and other important aspects related to the DTA-to-SEZ supply.
1. Legal Framework
- Special Economic Zones Act, 2005 (SEZ Act): SEZs are designated areas that are treated as foreign territories for trade and tax purposes, meaning they are outside the customs jurisdiction of India.
- SEZ units are entitled to several tax incentives and exemptions, including customs, excise, and GST exemptions on exports, which includes supplies from DTA.
- GST Act (2017): The GST (Goods and Services Tax) regime applies to the movement of goods from DTA to SEZ. The provisions under the GST Act specifically cover the supply of goods and services to SEZ units.
2. Procedure for Supply of Goods from DTA to SEZ
a. Procedure Under GST
- GST on Supply: Supplies from a DTA unit to SEZ unit are treated as zero-rated exports under Section 16 of the IGST Act, 2017. Therefore, no GST is payable on such transactions.
- Invoicing and Documentation:
- Invoice Declaration: On the invoice for the goods being supplied to the SEZ unit, a declaration must be made stating:
- “Supply to SEZ unit for authorized operations”.
- SEZ units are treated as exporters, and the supply is considered a zero-rated export.
- The invoice must indicate IGST exempt, as the transaction is treated as a zero-rated export.
- Export Documentation: In addition to the invoice, the supplier must maintain the following documentation:
- Letter of Approval issued by the Development Commissioner of SEZ.
- Acknowledgement of Receipt from the SEZ unit upon receipt of goods.
b. Procedure Under Customs Law
- Customs Procedures:
- The movement of goods from DTA to SEZ is treated as export under the Customs Act, 1962. However, since it's an interstate supply, no customs duties are charged on the supply.
- The goods are not liable to customs duty as long as they are used in authorized operations within the SEZ.
- If goods are moved out of SEZ for non-authorized purposes, customs duties will apply retroactively.
- Supply Declaration for Export: The goods moving from DTA to SEZ must be filed with a Shipping Bill or Bill of Entry.
3. Precautions to Be Taken
- Authorization: Ensure that the SEZ unit has received the required authorization for the goods and services being imported. Without the authorized operations certificate, the supply cannot be treated as an export.
- Invoicing Correctly: Ensure that the zero-rated export is clearly stated in the invoice. The invoice must also contain a declaration that the goods are intended for use in authorized operations within the SEZ.
- Compliance with SEZ Rules: The DTA supplier must verify that the goods are being supplied to a genuine SEZ unit and that they are not misused for non-authorized activities.
- Documentation Maintenance: Proper documentation must be maintained, including proof of receipt of goods by the SEZ unit and the SEZ approval letter.
- GST Compliance: Ensure that there is no claim of Input Tax Credit (ITC) by the DTA unit when supplying goods to the SEZ unit. Since the transaction is zero-rated, ITC should not be claimed, but the DTA unit is eligible for a refund of accumulated taxes on inputs.
4. GST Implications: Whether Payable, Refund, and Procedures
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GST Payable: No GST is payable on the supply from DTA to SEZ as it is considered an export transaction. This falls under the zero-rated export provision under Section 16 of IGST Act, 2017.
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Refund of Input Tax Credit (ITC):
- The DTA supplier is not liable to pay GST on the supply of goods to SEZ units, but they can claim a refund of any accumulated Input Tax Credit (ITC) on input goods and services used to manufacture the goods.
- To claim the refund, the DTA supplier must submit a refund application to the relevant GST authorities.
- Refunds can be claimed through the GST RFD-01 form on the GST portal.
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Export Declaration on Invoice: The DTA unit must declare the zero-rated export status and the details of the SEZ unit on the invoice.
5. Duty Drawback
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Eligibility: A DTA unit can claim Duty Drawback on any customs duties paid for imported raw materials used in the production of goods that are exported to SEZs.
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Claim Procedure:
- The DTA supplier should file a Duty Drawback claim under the Customs Duty Drawback Scheme.
- The claim should include the Shipping Bill and other necessary documentation showing that the goods were exported.
- The supplier can get the duty drawback based on the customs duties and GST paid on the raw materials and goods.
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Conditions: Goods must be exported to an SEZ unit for authorized operations. Duty drawback cannot be claimed if the goods are not used for the authorized purpose within the SEZ.
6. Important Declarations and Compliance
- Declaration on Invoice: As mentioned earlier, the invoice must include the statement:
- “Supply to SEZ unit for authorized operations.”
- Letter of Approval: Ensure that the SEZ unit has the letter of approval from the Development Commissioner of the SEZ. This ensures that the supply is legitimate and qualifies for the export treatment.
- Shipping Bill/Entry: Properly file the Shipping Bill or Bill of Entry to establish that the goods are being exported to an SEZ.
7. Conclusion
The supply of goods from DTA to SEZ units is a zero-rated export under the GST framework and is treated as an export under Customs law. The DTA supplier is not liable to pay GST, and they can claim a refund of accumulated input tax credits. The procedure involves filing the right documentation, declaring the export status, and following compliance measures, including the letter of approval from the SEZ unit and the proper invoicing requirements.
Precautions include ensuring that the goods are used for authorized operations within the SEZ, ensuring no GST claims on ITC that conflict with export regulations, and correctly filing Duty Drawback claims.
Understanding and following procedures and guidelines may enable DTA units to supply goods to SEZ units without hassles and avail of incentives such as refunds and duty drawbacks, while maintaining compliance with the applicable laws.
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