Sez

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BAJAJ JAGDISHKUMAR LALCHAND (Querist)
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12 February 2016 I AM DEALER / SELLER OF VENDING MACHINE AND DIFFERENT TYPE OF TEA AND COFFEE FLAVOURS- LIKE MANGO TEA, ETC.SOLD TO TATA CONSULTANCY SERVICE LTD GANDHINAGAR WHICH IS LOCATED IN SPECIAL ECONOMIC ZONE (SEZ UNIT) AND HAVING ELIGIBILITY CERTIFICATE. HERE MY QUESTION IS THAT THEY DEMANDING ZERO VAT SALE BILL OR SAY DONT CHARGE VAT ON TEA AND CONFEE FLAVOUR BECAUSE OUR UNIT IS SEZ UNIT. HERE MY QUESTION IS THAT IT IS NOT PURCHASE OF THE UNIT. UNIT IS ELIGIBLE FOR EXEMPTION FROM PAYMENT OF SALES TAX (VAT) AND OTHER TAXES FOR PURCHASE OF GOODS . IT IS EXPENDITURE OF THE COMPANYAND NOT OF THE PURCHASE. TEA COFFEE IS USED FOR STAFF WELFARE. SO IT IS NOT PURCHASE. HERE WHAT IS INGREDIENT, TEA AND COFFEE IS USE FOR SELF NOT FOR RESALE, SO HERE CAN I DO SO. CHARGE ZERO VAT ON SALE AND CLAIM ITC AS REFUND. IT WILLBE CORRECT.
PL. GUIDE US.

CA. Hari Kishan

CA. Hari Kishan (Expert)
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13 February 2016 The exemption is for the SEZ. All dealers selling goods to a SEZ unit are required to charge VAT in the tax invoice and later the SEZ shall make application for refund of the eligible inputs.

BAJAJ JAGDISHKUMAR LALCHAND

BAJAJ JAGDISHKUMAR LALCHAND (Querist)
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26 February 2016 i am selling tea and coffee in different flavour to SEZ unit who use this for own consumption or say used for his workers/ stafff. tea and coffee is not goods ( raw material ) of SEZ unit.. my question is whatever sale to SEZ is tax free or say exempt from vat tax

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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25 July 2025 Thank you for the detailed question! It seems like you're looking for clarification regarding VAT (Value Added Tax) on sales to SEZ (Special Economic Zone) units, especially when the goods are for **staff welfare** and not for resale.

### Key Points about SEZ Exemptions

Under the **GST regime (Post-2017)** and under the **VAT regime (Pre-2017)**, SEZ units are indeed eligible for certain **tax exemptions** when purchasing goods. However, the **conditions** around VAT on goods sold to SEZ units depend on whether the goods are for **direct export** or for **use within the SEZ**. Here are the main points to consider:

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### VAT on Sales to SEZ Units (Under VAT Regime)

1. **SEZs are entitled to exemptions for goods used for export or for manufacture within the SEZ**:

* Normally, if the goods are being used within the SEZ for manufacturing or exporting purposes, the supplier (you, as the vendor) **does not charge VAT** on the sale. This is often referred to as **zero-rated sale**.
2. **SEZs and Staff Welfare Purchases**:

* The goods you are selling (tea and coffee in different flavors) are for **staff welfare purposes**, not for resale or manufacturing. This does create a gray area.
* In such cases, it is common practice that if the goods are **not intended for export or manufacturing within the SEZ** (but are used for non-business purposes like staff welfare), then the SEZ unit may still claim a **refund of VAT** paid on such purchases.
3. **Zero-Rating or Exemption for Sales to SEZ Units**:

* For your specific case of selling tea and coffee flavors, if these are used **exclusively for the internal welfare of the SEZ unit** (e.g., for staff consumption and not for resale), the sale **may qualify for exemption or zero-rating** of VAT.
* This is because SEZ units can claim a refund of VAT paid on goods bought for **personal use** within the SEZ. The exemption largely depends on whether the goods are **directly used for export or manufacture** or for **internal consumption**. If the goods are for internal welfare and not part of the SEZ’s business activities (such as manufacturing or export), the **sale may still be exempt from VAT**.

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### Can You Charge Zero VAT and Claim ITC Refund?

* If the goods (tea and coffee) are for **staff welfare** and are not part of the SEZ unit’s **business operations** (e.g., manufacturing, export), you might be required to charge **VAT** at the standard rate.

* The **SEZ unit** can then apply for a **refund** of the VAT paid, assuming they follow the prescribed procedure for claiming such refunds. This is common for purchases made for **staff welfare**, as these are still considered “inputs” used in the operation of the SEZ, even though they are not directly involved in manufacturing or export.

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### GST Regime (Post-2017):

If you're operating under **GST** (since the GST system replaced VAT in 2017), the process is more straightforward:

1. **Zero-Rated Supply**:

* Under the **GST regime**, sales to SEZ units are **zero-rated** under Section 16 of the IGST Act, meaning that you do not charge any GST on the sale of goods to an SEZ unit.
2. **ITC and Refunds**:

* The SEZ unit can claim a **refund of the GST paid on the purchase** as long as it is a **zero-rated supply** under the GST law.

However, if the goods are used for **staff welfare** and not for business (like manufacturing or export), the unit may still apply for a refund of the GST paid.

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### Key Takeaways:

* **VAT under the old system**: You may be required to charge VAT on sales to SEZ units for staff welfare purposes, but the SEZ can claim a refund.
* **GST under the new system**: Sales to SEZ units are **zero-rated**, meaning no GST is charged, and the SEZ unit can claim a refund of input tax credits (ITC) on such purchases.

**Suggestion**: It's a good idea to **clarify with the SEZ unit** whether they intend to use the goods for **manufacturing or export** purposes or just for **internal use**. You should also verify the local VAT/GST laws applicable to your specific case.

Would you like further clarification on the GST process or any other details?

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