Applicability of Reverse Charge Mechanism to SEZ units or developer
By: – LAKSHMINARAYANAN TR
Goods and Services Tax – GST
Dated:- 9-10-2018
Applicability of Reverse Charge Mechanism under sec 9(3) and 9(4) of CGST Act 2017 to a SEZ Unit or Developer
Objective of this write up is to share our thought process on whether RCM u/s 9(3) & 9(4) applies to SEZ unit or Developer. Most of the popular forums and websites taken a skewed view based on the following notifications and Section 51 of SEZ Act has an overriding effect on inconsistencies caused by any other laws in force.
* Notification no: 18/2017 IGST rate exempts services imported by a SEZ unit or developer from the whole of IGST payable on that transaction.
* Similarl
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e is in India
Definition of import under SEZ Act 2005:
2(o)- “import” means-
(i) bringing goods or receiving services, in a Special Economic Zone, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise; or
(ii) receiving goods, or services by, Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone
Thus, its clear that import here necessarily means either goods or services must come from a place outside India i.e. supplier should be outside India. Supply from DTA ( Lawyer, GTA etc) to SEZ unit or developer is not an import. Under sec 7(5) of IGST Act, Supply to or from SEZ Unit or developer is defined as
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aligned with GST until 19th Sep 2018.
Notification No. G.S.R. 909(E) Dated: 19-9-2018 – SEZ, addressed that gap by duly inserting key philosophies of GST through SEZ (Amendment) Rules, 2018. Especially rule 30(1) by inserting Zero-rated supply as defined u/s 16 of IGST Act and rule 30(2) to include the services for the first time.
Thus, both the laws are now aligned, sec 51 of SEZ Act should not be referred to in this context.
To conclude, Reverse Charge Mechanism u/s 9(3) and 9(4) applies to SEZ unit or developer, They should recognise this as a liability and discharge the same by cash payment. Tax Burden suffered can be availed as ITC and should be refund under rule 89(2)(a) & 9(b).
Hope you find this useful, you can reach out to us
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