GST update on accommodation services provided to SEZ

Special Economic Zone (SEZ) units have been given special treatment in GST regime and so is the supplies of goods and services made to SEZ unit. This update seeks to bring your attention to some ambiguities created in respect of supplies made to SEZ units in GST regime.

Recently, clarification has been given in GST Tweet FAQs issued by twitter handle of Government of India as follows:-

"Can a hotel providing accommodation issue IGST bill to a client located in SEZ area as a client is asking for it.

Ans. - No"

As the answer has been given in negative, it implies that the CGST & SGST is to be charged on the accommodation services supplied by hotel to SEZ unit as indicated by this answer given at twitter handle of Government. Whether this answer correct? Let's analyze the situations in view of existing legal provisions.

Supplies made to SEZ have been treated at par with physical exports. According to section 7(5) of IGST Act, 2017; supply of goods or services or both to or by a Special Economic Zone developer or a Special Economic Zone unit will be treated as supply of goods or services or both in course of inter-State trade or commerce. Thus, in view of this provision, it is clear that any supply made to SEZ unit or developer will always be leviable to IGST as it is deemed as made in course of inter-state trade or commerce. It is worthwhile to mention here that the sub-sections 1 and 3 of section 7 of IGST Act, 2017 starts with the language "Subject to provisions of section 10" or "Subject to provisions of section 12"; however no such language is used in the sub section 5 of section 7 which prescribes the supplies made to SEZ units. This indicates that in this case, there is no need to check provisions related to place of supply. Accordingly, any supply of goods or services made to SEZ unit or made by SEZ unit will always be treated as inter-state supply irrespective of what is mentioned in place of supply provisions of IGST Act.

Further, Notification No. 15/2017-Integrated Tax (Rate) dated 30th June, 2017 exempts all goods or services or both imported by a unit or a developer in the Special Economic Zone, from the whole of the integrated tax leviable thereon under sub-section (7) of section 3 of the Customs Tariff Act, 1975 for authorised operations. Also, Notification No. 18/2017 -Integrated Tax (Rate) dated 5th July, 2017 has been issued to exempt services imported by a unit or a developer in the Special Economic Zone for authorised operations, from the whole of the integrated tax leviable thereon. Thus, the import of goods and services are exempt when imported by SEZ unit for authorized operations. The term authorized operations is not defined in GST law. As per section 2(c) of SEZ Act, 2005; “authorised operations” means operations which may be authorised under sub section (2) of section 4 and sub section (9) of section 15.

Therefore, the above notifications makes it clear that if any service is used for authorized operations, it will be exempted; otherwise tax will be leviable. In this regard, it is worthwhile to recall that since the supply to SEZ unit is always termed as inter-state supply; IGST will be leviable. There is no question of levying CGST & SGST in any case. Therefore, the tweet given on twitter handle of Government is misleading and is against the existing legal provisions.

The content of this GST update is for educational purpose only and not intended for solicitation.
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GST update on accommodation services provided to SEZ

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