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Introduction to Special Economic Zone (SEZ)

A special economic zone (SEZ) is defined as a zone where businesses enjoy lenient taxation laws and legal compliances. Another defining feature of SEZs is that they are located within the national borders of a country, partially owing to the nature of the commerce-related laws applicable in such areas, they are treated as a foreign territory for the purpose of taxation. Also, due to the same, the supply from and to such places have a little different treatment than the run-of-the-mill supplies. In simpler words, although SEZs are located in the same country, they are considered to be a different national territory altogether. As a result of the same, the supply of any goods or services to or by a developer based in a Special Economic Zone unit is treated as an interstate supply and Integrated Goods and Service Tax (IGST) is charged under the GST law. This article will take a deeper dive into the kind of GST that is attracted by supplies that are going in and out of a Special Economic Zone and what is the applicability of an e Way bill in such areas. Read on to know more.

What do you Mean by Imports and Exports in the Context of an SEZ?

An export, in the context of an SEZ, is defined as a good and service that have been sent outside of India for the purpose of selling them or having them rendered. Additionally, the supply of goods and services from one unit/developer in the SEZ to another unit in the same SEZ or some other one. An import, on the other hand, is a good or service brought into an SEZ from an actual foreign country by any mode of transport.

What are the Applicable GST Laws in an SEZ?

An SEZ can prove to be advantageous to a certain extent in terms of taxation. Additionally, any supply of goods and services, or both, to an SEZ will be considered as a supply that is zero-rated. The same means that they attract a Zero per cent tax rate under GST. To put it in another way, supplies into an SEZ are GST exempt and considered as exports. Therefore, the suppliers supplying goods to SEZs can:

  • Supply under a bond or LUT without paying the IGST and even claim credit of ITC; or

  • Supply on the basis of the payment of IGST and claim a refund of the taxes that have been paid.

It must also be noted that when an SEZ supplies goods and/or services and/or both to any one, it will be counted as a regular inter-state supply and will hence attract IGST.

The exception to the rule above is the fact that when an goods and services or both are supplied by an SEZ to a Domestic Tariff Area (DTA), that particular transaction will be considered as an export to the area in question, which is why they will consequently attract other import duties which will have to be paid by the person who has received these supplies in the DTA.

E Way Bill Applicability Rules for SEZ

As far as eway bill applicability for SEZ dwellers is concerned, under the GST taxation system, the transporters must carry an e way bill when they are moving goods from one place to another, provided the value of the consignment in question exceeds ₹50,000 in value as supplies originating from an SEZ are treated just like any other other inter-state supply. Also, just like in the case of regular inter-state supplies, the SEZ units or developers will be required to follow the standard EWB procedures just like the other players from the same industry have to. In the event of a good or service or both being supplied from an SEZ to a DTA, or any other place for that matter, the onus of generating an e Way Bill falls upon the registered individual that facilitates the transactional process.

As far as the validity of e Way Bills issued by the SEZs are concerned, As and when the e Way bill is issued by the relevant individuals, its validity is set at one day. The validity of the e Way bill in question remains the same as long as the distance that is travelled by the cargo stays below the 100km mark. Post that, depending upon the type of the e Way bill that is issued, an additional day is added to the validity period of the document as and when the goods travel an additional 20 or 30 kilometers.

You can learn more about E Way Bills, GST and their importance on Finserv MARKETS.