Hello, in this post we are going to discuss on the Special Economic Zone in India also known as SEZ in GST.

We will cover the following topics in this blog:

What is SEZ or Special Economic Zone?

A special economic zone (SEZ) is a special area that enjoys a unique economic regulation compared to other regions of the same country. SEZ is considered to be a foreign territory.

These zones have simpler tax and easier legal compliances making it the most favorable area for foreign direct investment (FDI).

Therefore when you conduct business in SEZ, you can enjoy many benefits like tax incentives, pay lower tariffs and labor regulations, etc. Special tax holidays are also offered to the operational units in SEZ.

The various objectives behind the implementation of SEZ are:

  • To increase foreign trade by promoting the export of goods and services
  • Increase foreign investment in the country.
  • Create more domestic jobs for the people and increase the employment rate.
  • Improve effective administration and procedures for compliance.
  • To improve infrastructural facilities in the country.

What is the impact on SEZ under the GST regime?

As per the GST, any supply to or by an SEZ developer /SEZ unit is an inter-state supply. It is because SEZ is considered to be foreign territory and it will attract IGST.

It can be classified into 2 and they are Export and Import:

Export under SEZ in GST

  • Transport of goods/services by any mode of transport from SEZ to outside India.
  • Supply of goods /services between one SEZ unit/developer to another unit or same unit.

Import under SEZ in GST

  • Bringing goods /services by any mode of transport into an SEZ from outside India.
  • Receiving goods/services from one SEZ unit/developer by another unit/developer located in the same SEZ or another SEZ.

Goods suppliers to SEZs can supply by the following:

  • Under bond / LUT without paying IGST and claim ITC.
  • By IGST payment and claiming refund of taxes paid.

Note:

  • Integrated Goods and Service Tax (IGST) is applicable to the supply of goods/services from SEZ.
  • IGST exception when an SEZ supplies goods /services to a Domestic Tariff Area (DTA). So, it is export to DTA (exempt for the SEZ). The person receiving these DTA supplies is liable to pay customs duties and other import duties.
  • Any supply of goods /services to an SEZ developer/unit has a zero-rated supply ( ie, Zero tax rate under GST). In short, supplies into SEZ are exempted from GST and considered as exports.

E-way Bill in SEZ under GST

Under GST, transporters need an e-Way Bill for the transport of goods from one place to another and if the value of the goods is above Rs. 50,000.

SEZ supplies are the same as inter-state supplies. So, SEZ units need to follow the same E-Way Bill procedures like that of inter-supply of goods.

Note: If the supply of goods from SEZ to a DTA or any other place, the registered person who does the movement of goods needs to generate the e-Way Bill.

An example to make it more clear for you:

Somz industries is an SEZ unit located in Kerala. Deepak located at Kochi receives the Somz manufactured goods. The value of transported goods by Somz industries is Rs. 60,000. So, this transport of goods is an Inter-state supply and thus IGST is applicable.

With that, we have come to an end of this post on SEZ in GST. Share with us your queries in the comments section below.

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