Changes in Treatment of Supplies to SEZ Units/Developers !

 

 
📅 Until 30-Sep-2023 : Supplies to SEZ units or developers are considered as 'Zero rated supplies' under Section 16 of the IGST Act, allowing suppliers to avoid paying IGST upfront.
 
📅 Effective from October 1, 2023: The Finance Act, 2021 (Section 123) brought a significant change, limiting zero-rated supplies to only those supplies which are intended for 'authorized operations' within SEZs.

📜 Reference : Notification No. 27/2023-CT dated July 31, 2023 along with section 123 of Finance Act 2021
 
🤔What does this mean for you? Going forward, only supplies utilized for ‘authorized operations’ by SEZ units or developers will be considered as ‘zero-rated supplies. For supplies not meant for ‘authorized operations’, the option of not paying IGST upfront or claiming a refund later will no longer be available.
 
⚖️ Section 2(c) of SEZ Act 2005 defines “Authorised Operation” as operations which may be authorised under sub-section (2) of section 4 and sub-section (9) of section 15. According to the clause , Development Commissioner of the SEZ may after approval of the proposal grant a “Letter of Approval” (LOA) mentioning the authorised operations .
 
📜 Implication for Suppliers to SEZ : SEZ suppliers must now understand in advance or take critical actions to ensure that their supply comes under the "Authorised operation" of a SEZ unit.
 
1️⃣ Evidencing Zero Rate Supply - The supplier must get an endorsement on the tax invoice from the recipient SEZ unit or developer declaring that the supplies will be utilised for 'approved operations' in accordance with SEZ law. This step is critical to keeping supplies zero-rated.

2️⃣ For IGST Refund of SEZ Supply: Endorsement from SEZ officer – According to Rule 89 of the CGST Act, the application for the IGST refund should be accompanied by the tax invoice of goods or services, which must be endorsed by the specified officer of the SEZ. The endorsement should confirm that the supplies have indeed been used for 'authorized operations' as per the SEZ law.
 
In summary, suppliers to SEZ units or developers need to follow these endorsement procedures diligently to ensure compliance with SEZ laws and to facilitate zero-rated supplies or claim refunds where applicable.