To qualify for this exemption, SEZ units must furnish a Letter of Undertaking (LUT) or a bond as specified by the government.
In a significant development for SEZ Units, a recent ruling by the Gujarat-based Authority for Advance Rulings (AAR) could potentially exempt these units from paying Integrated Goods and Services Tax (IGST) on specific services procured from the Domestic Tariff Area (DTA) via the reverse charge mechanism.
The ruling sets a precedent where SEZ units, such as Surat-based Waaree Energies Ltd engaged in solar module manufacturing, may be eligible for IGST exemption on services like those from goods transport agencies, legal counsel, security providers, and employee transportation rentals.
To qualify for this exemption, SEZ units must furnish a Letter of Undertaking (LUT) or a bond as specified by the government, thus aligning with the zero-rated intent of the GST Act. Typically, under the reverse charge mechanism, the recipient of services is liable to pay GST to the government.
The AAR’s decision, prompted by a case involving Waaree Energies Ltd, sheds light on the complexity surrounding GST obligations for SEZ units. While the Tax Research Unit (TRU) at the Central Board of Indirect Taxes and Customs (CBIC) previously clarified that SEZ units can procure certain services under the reverse charge mechanism without IGST payment, the ruling provides a concrete legal precedent for such transactions.
Sandeep Sehgal, Partner at tax and consulting firm AKM Global, hailed the ruling as a game-changer for SEZ-based businesses. He emphasized that it not only streamlines compliance but also fosters a conducive environment for growth and investment in SEZs.
This ruling underscores the importance of clarity and consistency in tax regulations, providing much-needed relief and certainty for businesses operating within SEZs.
To Access the GSTN Advisory 633 (Enhancement in GST Portal) CLICK HERE
Read More
Embracing Artificial Intelligence (AI) for Efficient Tax Compliance