What is the Meaning of Special Economic Zone Under GST?

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  • Last Updated on 31 December, 2020
As per Section 2(19) of IGST Act, Special Economic Zone shall have the same meaning as assigned to it in clause (za) of Section 2 of the Special Economic Zones Act, 2005.
 
The specific clause (za) of Section 2 provides that “Special Economic Zone in GST” means each Special Economic Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone.
It is pertinent to refer clause (i) of Section 2 which defines that “Domestic Tariff Area” means the whole of India but does not include the areas of the Special Economic Zones.
 
Further, exports defined under Section 2(m) of SEZ Act as “Export” means-
 
a. Taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or
 
b. Supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or
 
c. Supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone.
 
It is settled that SEZ is an area considered to be situated outside India and any supply to SEZ is at par export and such supply attracts zero rate as zero rated supply.

SEZ Treatment Before GST:

Section 26 of the SEZ Act grants exemption, to every SEZ Unit and developer, from: • Any duty of customs under Customs Act, 1962 on goods or services imported into or exported from India, • Any duty of excise under Central Excise Act, 1944 • Service Tax under Finance Act, 1994 • Levy of taxes on sale and purchase of goods other than newspaper • The securities transaction tax leviable under Section 98 of the Finance act, 2004. Any transaction with or by SEZ Unit or SEZ Developer shall be exempted from any indirect tax law.

SEZ Under GST:

Under GST Law only for the purpose of levying GST, SEZ Units are not to be considered as a part of India which means:
 

a. IGST Exemption:

 

Any supply to SEZ Unit has been made exempt vide Notification No. 64/2017 – Customs dated 5th July, 2017.

 

b. Import: 

 

Any supply from SEZ Unit to DTA shall be treated as Imports and would be taxable under Reverse Charge Basis at the end of the recipient. Rest other thing it will be considered as part of India.

Therefore, suppliers of goods or services or both to any recipient in the SEZ can avail the following:
 
• Make supply under bond or LUT without payment of IGST and claim credit of ITC; or
 
• Make supply on payment of IGST and claim refund of taxes paid.
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