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Special Economic Zone (SEZ) under GST

What is SEZ in India?

Special economic zone (SEZ) is the area which is deemed as a foreign territory within the country border and is also a duty free region for the purpose of trade and tariff. In India, SEZ policy was first heralded in April 2000 and the SEZ Act was formed in the year 2005. The SEZ act came into effect on the 10th February 2006 after getting over 700 suggestions on the drafted rules. At present, there is total 22 states India where special economic zone are notified and operational.

Generally, SEZs are duty-free and enjoys most of the tax benefits this is to promote the free flow of goods and services and also to attract the investments either from the local investors (Domestic investment) or from the foreign investors (Foreign direct investment) or both. Special economic zone (SEZ) can be sector specific too such as information and technology, biotechnology, logistics etc.

What are the objectives of SEZ?

The prime objectives of SEZ are

•   To enhance the economic activity in India by providing duty free trade.

•   To promote exports of goods and services.

•   To generate and increase the employment opportunity in India.

•   To attract domestic investment and foreign direct investment (FDI).

•   To improve and develop the infrastructure facility in India.

State wise bifurcation of SEZs

State or Union TerritoryFormally ApprovedDecided to Grant ApprovalsNotifiedExporting SEZs
including Central Government + State Government or Private SEZs + notified SEZs
under the SEZ Act, 2005
Andhra Pradesh
29
4
25
20
Chandigarh
2
0
2
2
Chhattisgarh
2
1
1
1
Delhi
2
0
0
0
Goa
7
0
3
0
Gujarat
28
4
24
19
Haryana
24
3
20
6
Jharkhand
1
0
1
0
Karnataka
62
0
51
26
Kerala
29
0
25
19
Madhya Pradesh
10
0
5
4
Maharashtra
57
11
50
28
Manipur
1
0
1
0
Nagaland
2
0
2
0
Odisha
7
0
5
4
Puducherry
1
1
0
0
Punjab
5
0
3
3
Rajasthan
9
1
8
4
Tamil Nadu
50
3
47
37
Telangana
64
0
57
30
Uttar Pradesh
24
1
21
12
West Bengal
7
2
5
7
Total
423
31
356
222

Export and Import meaning for SEZ under GST

As special economic zones are deemed to be as a foreign territory so any movement of goods and services are treated as exports and imports.

Exports

Meaning of exports in the context of SEZ is that

•   Any transaction of goods and services took outside the special economic zone to outside India. Or,

•   Any movement of goods or services from one unit to another in the same SEZ or to other units of different SEZ located in the same SEZ or another SEZ.

Imports

Meaning of imports in the condition of SEZ is

•   Any transaction of goods and services bought inside the special economic zone from a place located outside India. Or,

•   Any transfer of goods and services from one unit of SEZ to another unit of SEZ located within the same SEZ or another SEZ.

SEZ under GST

GST is the biggest economic reform in India and it provides multiple benefits to the companies located in the special economic zone. The benefits are:

•   Any movement of goods or services to the unit of special economic zone comes under zero-rated supply.

•   IGST shall be exempted for any transaction of goods and services to the SEZ (Notification no. 64/2017-customs)

Any supply or transfer from the special economic zone (SEZ) to the domestic tariff area (DTA) shall be deemed export to DTA. In such cases, the reverse charge is applicable where the recipient of the supply is liable to pay the tax.

Furthermore, the supplier transferring goods to SEZ can

•   Supply either goods or service or both as the case may be under the letter of undertaking (LUT) or bond without paying the IGST and can also claim an input tax credit(ITC). Or,

•   Transfer the goods and service on payment of IGST and then claim refunds on the taxes paid.

SEZ under EWB

After the implementation of the e-way bill under the GST regime, every person-in-charge carrying goods and services exceeding the amount of 50,000 INR shall carry an e-way bill either a copy or mapped RFID. SEZ movements of goods and services shall be treated as a normal inter-state supply and hence every SEZ unit shall follow the same steps or procedures for the generation of the e-way bill.

For instance

•   ABC is a unit of Delhi’s SEZ.

•   X is the company situated in Mumbai which is receiving the goods amounting 90,000 INR from SEZ.

•   Then XYZ is responsible for the generation of the e-way bill.