GST Implications: Supply by SEZ unit from unit located in non SEZ area
Sapthagiri Hospitality (P.) Ltd. – Appellate AAR – Gujarat – Order No. GUJ/GAAAR/APPEAL/2019/2 – Dated 02-01-2019
Facts if case:
The appellant, a SEZ Co-developer, has constructed a hotel in the non-processing zone of Dahez SEZ, and started hospitality services therein. The appellant submitted that the hospitality services provided by them inter-alia includes providing rooms on tariff, supplying food/beverages, laundry services, housekeeping services etc. within the premises of the hotel.
Appellant had filed application before Gujarat AAR for seeking applicability of GST on the services from their hotel located in non-processing zone of Dahez SEZ to the clients located outside the territory of SEZ under the provisions of Section 5(1) of IGST, 2017. Hon’ble AAR had upheld that appellant is liable for to pay IGST and hence being aggrieved filed application before Appellant AAR.
GST is a destination based consumption tax and this principle needs to be kept in mind. It has been submitted that the actual destination and consumption as well as enjoyment of services is the place where hotel is located i.e. Dahej, in terms of Section 12(3) of the IGST, 2017. As the supply has been made in SEZ, no IGST will be applicable
Appellant had further contended that services have been provided directly in relation to immovable property in the SEZ and such services are part of the authorized operation of the SEZ as is evident from the Letter of Permission. It has been submitted that the IGST should not be applicable on the services provided in SEZ to persons other than SEZ units as the said services are received within the SEZ, which is deemed to be territory outside India. It has also been submitted that in view of Section 53(1) of the SEZ Act, 2005, the provisions of IGST Act, 2017 would not apply to the services rendered in the SEZ.
Section 16(1)(b) of IGST Act provides that supply of goods or services or both to a SEZ developer or a SEZ unit, is covered under ‘zero rated supply’. Thus, to be qualified as ‘zero rated’ supply, the law specifically refers the supply ‘to’ SEZ developer/ unit and not ‘to or by’ SEZ developer/unit. Therefore, the supply of service by the appellant would be liable to Goods and Services Tax, unless specifically exempted by law.
There is no doubt that supplies made by units or developers/co-developers of SEZ are treated as inter-state supply under Section 7(5) of the IGST Act and are liable to IGST under Section 5(1) of the IGST Act. Out of these, only supplies made to SEZ developer/unit for authorized operations have been made zero rated, other are liable to IGST. This issue has been discussed by the GAAR at Para 5 of the Advance Ruling wherein it is held that rendering of services from SEZ to DTA does not qualify as Zero Rated supply in terms of Section 16 of the IGST Act, 2017, therefore, SEZ Unit/ developer making inter-state supply to DTA would be liable to pay IGST under IGST Act. Since the supply is admittedly to visitors from DTA, the same will be liable to IGST.
Section 53 of the SEZ Act, 2005 provides a deeming fiction whereby the Special Economic Zone shall be deemed to be a territory outside the customs territory of India and that too for the specific purposes of undertaking the authorized operations. The term “customs territory” cannot be equated to the territory of India. Section 51 of the SEZ Act, 2005 provides for overriding effect in case there is anything inconsistent contained in any other law. However, no inconsistency between the provisions of the SEZ Act, 2005 and IGST Act, 2017 or CGST Act, 2017/GGST Act, 2017 has been pointed out by the appellant.
Hence, appellant is liable to pay GST on services from its hotel located in non-processing zone of Dahez SEZ to clients located outside territory of SEZ under provisions of section 5(1) of Integrated Goods and Services Tax Act, 2017.