SEZ units exempt from IGST
on certain services from DTA players: AAR ruling
Units operating within special economic
zones (SEZs) could potentially be exempt from paying the integrated goods and
services tax (IGST) on specified services taken from the domestic tariff area
(DTA) through the reverse charge mechanism, if a ruling by the Gujarat-based
Authority for Advance Rulings (AAR) sets a precedent.
To qualify for this exemption, these
units will need to provide a letter of undertaking (LUT) or furnish a bond.
These services include services from
goods transport agencies, legal services from advocates, security services, and
hiring buses for employees.
Normally, providers of services have to
pay Goods and Services Tax (GST) to the government, but it is the recipient of
services who pays tax to the government on the reverse charge mechanism.
The AAR issued the ruling in a case
involving the procurement of services by Surat-based SEZ unit --Waaree Energies
Ltd- which is engaged in the manufacture of solar modules.
Frequently asked questions (FAQs) issued
by the government in 2018 state that while the supplier of services in these
cases is not liable to pay GST as the supply is under a reverse charge
mechanism, SEZ has to pay IGST since the recipient is considered a deemed
supplier.
The issue becomes complicated since the
Tax Research Unit (TRU) at the Central Board of Indirect Taxes and Customs
(CBIC) clarified that a unit in SEZ can procure such services where they are
required to pay GST under the reverse charge mechanism without payment of
integrated tax (IGST) provided the unit in SEZ furnishes a letter of
undertaking. The clarification by CBIC was given in a case relating to legal
services, sponsorship services received by an SEZ unit in International Financial
Services Centre (IFSC) in Gandhinagar from a unit in DTA.
The AAR observed that this clarification
was given to a specific SEZ unit and is not a circular but there is no bar in
borrowing the rationale of the clarification.
Hence, the authority ruled that Waaree
Energies Ltd can procure the services without payment of IGST provided it
furnishes LUT or bond as specified by the government.
Sandeep Sehgal, partner at tax and
consulting firm AKM Global said this is a pivotal decision for businesses
operating within SEZs. It aligns with the zero-rated intent of the GST Act as
clarified by the TRU, allowing SEZ units to source services without the burden
of Reverse Charge Mechanism (RCM). This ruling not only eases compliance for
SEZ-based businesses but also fosters a more conducive environment for growth
and investment in SEZs, he said.
www.business-standard.com
dt. 24.04.2024