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Introduction - SEZs as an Extension of India's Export Policy Special Economic Zones were conceived as instruments of national economic policy to promote exports, attract foreign investment, and generate employment. The Special Economic Zones Act, 2005, accords SEZs a unique legal status by treating
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Supplies made to SEZ Developers and SEZ Units are treated as 'zero-rated supplies' under the GST law, similar to physical exports outside India. This means GST is neutralised at the source to ensure Indian goods and services remain competitive globally.
No, zero-rated supplies to SEZs are distinct from exempt supplies. While exempt supplies can break the input tax credit (ITC) chain, zero-rated supplies preserve it, allowing suppliers to claim ITC and ensuring GST acts as a value-added tax.
Supplies to SEZ entities are zero-rated only if they are made for 'authorised operations'. These are activities explicitly approved under the SEZ framework and are intrinsically linked to the SEZ's export objectives. This condition has been an explicit statutory requirement since 1 October 2023.
Registered persons have two options: supply without payment of IGST under a Bond or Letter of Undertaking (LUT), followed by a refund of unutilised ITC, or supply on payment of IGST with a subsequent claim for a refund of the tax paid.
Since 1 October 2023, the requirement that supplies must be 'for authorised operations' has become an explicit statutory condition. This means refund authorities can more rigorously examine the nexus between supplies and approved SEZ activities.
No, supplies made to SEZ Developers or SEZ Units, while treated as zero-rated under GST, do not constitute exports under FEMA and do not have a statutory requirement for foreign exchange realisation.
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