Overview of applicability of GST on Exports & Supplies made to a SEZ unit

1. As per Clause (b) of Sub-section (5) of section 7 of IGST Act 2017: supply of goods or services or both to or by a SEZ developer or SEZ unit shall be treated as if such supply is in the nature of inter-state supply.

2. Further Section 16 of IGST ACT states that:

(1) 'zero rated supply' means any of the following supplies of goods or services or both, namely:-

(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the CGST Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:-

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central CGST Act or the rules made thereunder.

Therefore, Supplies made to a SEZ unit and exports are considered as 'Zero-rated Supply'.  Accordingly, Section 16(3) provides for three options to suppliers making zero rated supplies:

1. Supply with payment of IGST;
2. Supply under a bond;
3. Supply under a Letter of Undertaking.

3. Now, let us take a look of various intricacies involved in above options:

i. Supply with payment of IGST: Under this option person making supply to SEZ will charge IGST at applicable rate. The invoice shall carry an endorsement 'SUPPLY MEANT FOR EXPORT ON PAYMENT OF INTEGRATED TAX' (as specified in RULE 46 of CGST Rules). The IGST charged in the invoice need not be collected from customer (Since this being a zero rated supply), instead Supplier need to pay the IGST amount by utilizing ITC and thereafter obtaining refund of same. This mode is recommended where excess ITC is available.

For procedure of refund of IGST Paid refer Sec. 54 of CGST Act & Rule 89(4) of CGST Rules.

ii. Supply under BOND: Under this option Supplier need to execute an Indemnity Bond in Specified format RFD-11 on non-judicial stamp paper. Additionally, a Bank Guarantee (not exceeding 15% of Bond amount) is also required to be furnished along with the Bond. Bond once executed will be valid for a period of 12 months. The said form is to be filed manually (online facility not available) to the Jurisdictional Deputy/Assistant Commissioner. This mode is recommended where Surplus ITC is not available. The supplier will be able to claim refund of ITC on inputs and input services used in zero rated supplies (not for zero rated supplies of domestic turnover).

Also the invoice shall contain the endorsement 'SUPPLY MEANT FOR EXPORT UNDER BOND WITHOUT PAYMENT OF INTEGRATED TAX.'

iii. Supply under Letter of Undertaking: Just like Bond LUT will also be accepted by Jurisdictional Deputy/Assistant Commissioner. No Bank Guarantee is required in this case. The same need to be furnished in form RFD-11 in manual mode. This mode is recommended where Surplus ITC is not available. The supplier will be able to claim refund of ITC on inputs and input services used in zero rated supplies (not for zero rated supplies of domestic turnover).

The invoice shall contain the endorsement 'SUPPLY MEANT FOR EXPORT UNDER LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX.'

4. Notification No. 37/2017- Central Tax dated 4th October 2017 has been issued in supersession of Notification No. 16/2017- Central Tax dated 7th July 2017. By virtue of this, now all the category of persons can furnish Letter of Undertaking as an alternative to furnishing Bond and Bank Guarantee. Notification No. 16/2017 had restricted the facility of LUT to limited category of persons. This has now been done away with.

5. Notification No. 48/2017- Central Tax & 49/2017- Central Tax dated 18th October 2017 specifies certain category of supplies as 'deemed export' and documents required to be produced by supplier of deemed export supplies for claiming refund respectively.

Further, recently, GSTN has enabled additional feature on GST portal wherein to claim refund of IGST exporters need to file TABLE 6A of form GSTR-1. This will enable the exporters to get faster refunds from Customs.