Why import of services by SEZ needs exemption specifically?: The study material broadly covers an overview of the four GST Acts focusing upon the following key topics- basics, registration, returns, payments, Composition Scheme, concept of Supply, Reverse Charge Mechanism and other aspects of GST.
Why import of services by SEZ needs exemption specifically?
- Import of Services is liable to GST under reverse charge mechanism under Section 5(3) of the IGST Act, 2017 but import of services by SEZ are exempt from GST vide Notification 18/2017 –IT (R) dated July 5, 2017;
- Section 26(2) of the SEZ Act enumerates the list of fiscal benefits extended to SEZ units and developers. This includes exemption from service tax on taxable services provided to SEZ units / developers. The SEZ Act has not been amended to provide for exemption from GST on supplies made to SEZ and hence GST is applicable on rendering of services to SEZ. However, supplies to SEZ are zero rated under Section 16 of the IGST Act and hence the domestic suppliers are not required to charge GST on rendering services to SEZ provided they furnish Legal Undertaking;
- In case of import of services, since the taxes are required to be discharged by the recipient ie SEZ and not the supplier, exemption from GST was granted on services imported by SEZ to ensure that SEZ do not end up paying taxes on import of services though there is no specific exemption provided under the GST Act;
- Alternatively, it would be relevant to note that in case of reverse charge mechanism the liability to discharge the tax shifts from the supplier to the recipient and the GST Act applies to such recipient “as if he is the person liable for paying the tax”. Thus, for transactions attracting GST under reverse charge mechanism including import of services, SEZ will step into the shoes of the vendor and will need to comply with the GST Law as if they are supplier of services;
- A supplier of service to SEZ can comply with the requirements of Section 16 of the IGST and render services without payment of tax since the supplies made to SEZ will be treated as zero rated. This view has been clarified vide F No 334/335/2017-TRU dated December 18, 2017 which was issued in the context of reverse charge mechanism liability on procurement of goods from unregistered dealers by International Financial Services Centre, SEZ.