SEZ units exempt from IGST on certain services from DTA players: AAR ruling
Units operating within special economic zones (SEZs) could potentially be exempt from paying the integrated goods and services tax (IGST) on specified services taken from the domestic tariff area (DTA) through the reverse charge mechanism, if a ruling by the Gujarat-based Authority for Advance Rulings (AAR) sets a precedent.
To qualify for this exemption, these units will need to provide a letter of undertaking (LUT) or furnish a bond.
These services include services from goods transport agencies, legal services from advocates, security services, and hiring buses for employees.
Normally, providers of services have to pay Goods and Services Tax (GST) to the government, but it is the recipient of services who pays tax to the government on the reverse charge mechanism.
The AAR issued the ruling in a case involving the procurement of services by Surat-based SEZ unit —Waaree Energies Ltd — which is engaged in the manufacture of solar modules.
Frequently asked questions (FAQs) issued by the government in 2018 state that while the supplier of services in these cases is not liable to pay GST as the supply is under a reverse charge mechanism, SEZ has to pay IGST since the recipient is considered a deemed supplier.
