How to supply to SEZ units under GST

Introduction

A lot of us have doubts and concerns regarding numerous aspects under GST. We on our website are working on each issue and providing an answer for every query. Hence today in this article we are dealing with supply to SEZ under GST.

In this article, we will be understanding firstly what is SEZ, how GST has affected it and how to supply to SEZ units under GST. Without much hassle, let's start with understanding the concept of SEZ in India.

What is SEZ?

Special economic zones or SEZ are areas where business and trade laws are different than rest of the country. SEZs are made to promote trade and economics in certain areas. Many financial policies are introduced to encourage business in that zone.

The major aims of SEZs are –

• Job creation
• Effective administration
• Increased investment
• Increased trade
• Foreign trade

The concept of special economic zone came into being in 2000. The primary objective was to create areas for hassle free trade and international trade to promote the economy. SEZs are the zones where duty-free trade is done.

Since the inception of GST, everyone is confused about the status of SEZs. Let's discuss the matter below.

Supply to SEZ units under GST

According to GST law, the supply of goods to SEZ units is treated as zero-rated supply. We have divided the supply to SEZ into two sections so that first let’s discuss the concept of zero-rated supply and then read about the procedure.

Zero-rated supply refers to items that are taxable however the rate of tax is nil on their input supplies. The following are zero-rated supplies –

• Export of goods
• Export of services
• Supply of goods and services or both to SEZs

Now whosoever is making supply to the SEZ units, he has two options:

• He may supply goods and services or both under bond or letter of the undertaking without paying IGST and claim the refund of unutilized input tax credit.
• He may supply goods and services or both with payment of IGST and may claim a refund on the tax paid.

Therefore, Supply of goods and services to SEZ unit would be considered as zero-rated supply and any one of the two options may be availed.

Procedure to supply to SEZ unit under GST

As per the GST guidelines, the supply to SEZ (zero-rated supply) can be done by 2 options. We will be discussing the procedure of supply under GST in details. The following are the options of supply in SEZ units –

• Without payment of IGST
• With payment of IGST

1. Supply of goods or services to SEZ units under GST without payment of IGST

When you are making a supply to SEZ you are required to pay the IGST and later on claim for it. However, there is another way of supply which is by LUT or bonds. In this case, the person can supply to SEZ units by furnishing LUT or bond to the department.

LUT stands for Letter of Undertaking and is submitted when the previous year foreign receipts are more than 1 crore rupees. Further, if you are supplying to the SEZ units for the first time, then you need to file the bond with the department.

Documents for LUT –

• Form RFD 11 on letterhead
• UT 1 bond on stamp paper
• Authority Letter
• Other relevant documents

Documents for bond –

• Form RFD 11 on letterhead
• Bond on stamp paper
• Bank guarantee (15% of the bond amount)
• Authority letter
• Other relevant documents

In the case of the bond, bank guarantee has to be furnished along with other documents.

After you have all the documents and form prepared you will have to visit the department to verify your documents and file the application.

2. Supply to SEZ under GST with payment of IGST

This option is when you are registered for GST and making a supply to SEZ with payment of IGST. Here what the supplier does is he will provide the goods or services to SEZs with payment of IGST which he will later claim in ITC.

In this scenario, if you want the return of the ITC that you have paid you will have to do with form GST RFD-01 electronically.

It is important to note that ITC can be claimed for business sales only and not for personal sales.

Conclusion

We hope that this article was of use for you. If you have any query related to GST feel free to contact us on info@hubco.in.

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