QUESTION

ABC had made Export of Service to SEZ under LUT before 01.02.2019 and have received sales proceeds in Indian Rupees, wherein one of the condition for such export of services to SEZ is that sales proceeds amount should be received in Foreign Convertible Currency. 1. Whether ABC had to pay IGST on services provided to SEZ? OR 2. Will ABC had to reverse input Tax Credit utilised to export such services to SEZ? Attention is invited towards a tweet by government wherein they had tweeted that ` Question: Supplies outside taxable territory and one of the conditions for export not met IGST leviable? Answer : If supplier is located in India and place of supply is outside India, than, it is inter-state supply u/s 7(5)(a) of IGST Act and no GST is leviable. If conditions of export are not met and tax is also not payable. ITC would not be available.` Keeping in view above details in this condition ABC had not received payment in Foreign Convertible Currency what amount has to be paid by ABC: IGST on Services Provided to SEZ or else input tax credit attributed to such services which were exported to SEZ.

ANSWER

FACTS OF THE CASE:

Supply of service was made to SEZ under LUT without payment of tax and consideration is received in INR.

LAW APPLICABLE:

1. Section 16(1) of IGST defines "Zero Rated Supply" as follows;

" 'zero rated supply' means any of the following supplies of goods or services or both, namely:

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. "

INTERPRETATION:

Subsection (1) of section 16 IGST dictates that zero rate supply may be of two types. First being, export of goods/service outside India and the second being, supply of goods/service to SEZ units/developers. It is imperative to note that the condition of collecting the consideration in convertible foreign exchange is laid under the clause (iv) of section 2(6).
However the said subsection lays down the definition of "Export of Service" and not "Supply of service to SEZ". Therefore the condition of remittance in foreign currency shall be applicable only in the cases where services are exported out of India. This condition is not applicable when supply of service is made to SEZ and such supplies would continue to covered under the definition of "Zero Rated Supply" by virtue of section 16(1) IGST and all the benefits as available to a zero rated supply would continue to be available to such supplies even if convertible foreign exchange is not realised.

CONCLUSION:

So to answer your questions,

Question 1: Whether I will have to pay IGST on services provided to SEZ?
Since the supply made to SEZ is a zero rated supply which was made under LUT therefore no IGST is required to be paid.

Question 2: Will I have to reverse input Tax Credit utilised to export such services to SEZ?
ITC is eligible for refund under rule 89 since zero rated supply has been made to SEZ. (Reply dt. 07/04/2022)