What is an SEZ, tax & trade implications on companies located in SEZ?

MEANING OF SPECIAL ECONOMIC ZONE (SEZ)

A Special Economic Zone (SEZ) is a zone wherein businesses enjoy simpler tax and easier legal difficulties. It is located in a country’s national borders only, but they are treated as foreign territory for tax purpose.

They are treated as foreign territory for tax purpose is the main reason why they have different treatment. So in simple words, even if they are located in same country but still they will have different treatment and will be treated as foreign territory.

In GST, SEZ will have Integrated Goods and Service Tax (IGST) as it will not be considered as a part of India.

Meaning of Export and Import

• Export means taking goods or services out of Special Economic Zone by any mode of transport or supply of goods or service from one unit in the SEZ to another unit in another SEZ.
• Import means bringing goods or services into a Special Economic Zone by any mode of transport or receiving goods or services from one unit by another unit located in another SEZ.

GST LAWS ON SEZ

Being in a SEZ is an advantage to a certain extent, it gives advantage as any supply of goods or services or both to a Special Economic Zone unit or by developer will be considered as ZERO RATED SUPPLY.

In simple words, it attracts zero tax in GST. Supply in SEZ are considered as exports, the supplies supplying goods to SEZ can first supply under bond or he can make a letter of undertaking for making supply of without payment of IGST and can also claim credit of ITC or he can supply on payment of IGST and can claim refund.

When a SEZ unit or a developer supplies any goods or services or both to any one, it will be also considered as integrated supply and will attract the Integrated Goods and Service Tax (IGST).

There is only one exception to above rule that is if Special Economic Zone supplies goods or service or both to Domestic Tariff Area (DTA). This will considered as export to DTA and custom duties and import duties will be payable.

E-WAY BILL RULE FOR SEZ

The transporter has to carry the E-Way Bill of transportation of goods from one place to another if the value is more than Rs. 50,000. The supply under SEZ are is treated as inter-state supply. The developer of Special Economic Zone shall have to follow the same procedure of E-Way Bill as the other industry follows.

Authored by Adv Shivam Kumar