Anticipations from over a decade were put to rest on July 1 when India's biggest tax reform since independence, "Goods and Services Tax"(GST) was launched.
With the introduction of GST, multitude of taxes have now been subsumed into one single tax, which will not only give a boost to the economy but will also bring about transparency and create self-disciplined tax ecosystem.
With an intent to give impetus to forex reserves of the country, Government has been regulating the export-import policy and has introduced various schemes for promoting exports of both goods and services. Special Economic Zones (SEZ) and Export Oriented Units (EOUs) schemes are also part of this export promotion strategy.
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SEZ is a specified demarcated duty-free territory, which for the purpose of trade operations is deemed to be considered outside the customs territory of India.
Set up primarily to promote exports, even GST regime continues to incentivize SEZ units by extending due benefits for their authorized operations.
A SEZ is required to follow two separate set of compliances. Firstly compliances governed by the SEZ Act, 2005, such as submission of periodical progress reports and secondly, compliances required to be undertaken in terms of indirect tax laws. While the former are likely to continue without any major changes, the latter would now be modified in line with the GST law.
Till now GST regime has been a mixed bag for SEZ sector. On one hand, under GST regime, registration rules have mandated SEZ to take separate registration, since it is considered as a separate business vertical. Apparently, this will result into increased compliance and record maintenance burden on sectors having multiple SEZ units. On the other hand, industry has welcomed GST lawmaker's decision to keep all the supplies made to a SEZ as "zero rated".
While all export of goods/ services and supplies of goods/ services made to a SEZ are chargeable to IGST, however, these supplies shall be treated as zero-rated supplies under GST.
Resultantly, the suppliers making any supply to SEZ will have two options, either, not charge any Integrated GST (IGST) to SEZ and supply under a cover of bond/letter of undertaking and file refund claim of corresponding Input Tax Credit (ITCBSE -0.53 %); or charge IGST on its supply, pay it and then claim refund.
Also, unlike previous regime, the onus of filing refund has been shifted from SEZ units to the suppliers. Therefore, the SEZ units would not be required to go through the hassles of claiming refund for supplies which did not enjoy upfront exemption. However, there is no clarity for reverse charge transactions wherein, the liability to pay GST would be on the service recipient. In such case, it needs to be ascertained whether the SEZ unit is required to pay tax and then claim refund.
Further, any procurements (of raw material, goods or services) made by SEZ from outside India for its authorized operations have been exempted from Basic Customs Duty (BCD) & IGST both.
With regard to outward supply made by a SEZ unit, if a SEZ unit makes any domestic clearances (i.e. within India), the customer will be required to file a bill of entry (BoE), pay BCD and IGST on the transaction and report it as a part of his inward supply as imports. Alternatively, if SEZ make domestic clearances without the cover of BoE, such transactions will be required to be reported by SEZ as its outward supply.
In relation to the
EOUs, all imports and domestic procurements are duty free. Under GST regime also it has been clarified that EOUs are allowed to import goods for the authorized operations without paying BCD. But such goods would suffer IGST and applicable cesses. In respect of indigenous procurements, the taxes so paid will be available as input tax credit (ITC) to EOUs and refund of the same can be claimed after exports.
Furthermore, to create a level playing field for domestic players, if an EOU makes domestic clearances, they will have to pay amount of BCD exemption benefit availed on imported inputs which were used in such domestic clearances.
It is therefore apparent that SEZ units would largely enjoy a status quo in GST as far as the various exemptions and benefits are concerned.
Source: economictimes.indiatimes.com