Sales by SEZ to DTA: statutory provision, tax effect, solutions
Sales by SEZ to DTA: Goods and Services Tax is one of the most comprehensive single tax reforms of independent India. GST is a comprehensive indirect tax levied on goods as well as services at the national level. It consolidated multiple indirect tax levies into a single tax thus subsuming an array of tax levies…..
Sales by SEZ to DTA
- Section 29 r/w Section 30 of the SEZ Act, 2005 provides that removal of goods (procured, produced or manufactured) from SEZ to DTA will be chargeable to duties of customs, as leviable on such goods when imported and the rate of duty shall be the rate in force on the date of such removal. Section 53 of the said Act also provides that SEZ shall be deemed to be a territory outside the customs territory of India for the purpose of undertaking authorized operations and be deemed to be port, inland container depot, land station or land customs station for Customs Act, 1962. Section 51 of the said Act also provides that provisions of the SEZ Act shall have the effect notwithstanding anything inconsistent with any other law;
- Section 7(2) of the IGST Act, 2017 provides that supply of goods imported into the territory of India till they cross the customs frontiers of India shall be treated as Inter State Supply. Further, proviso to Section 5(1) provides that integrated tax on goods imported into India shall be levied under Customs Law;
- Section 2 of the Customs Act, 1962 defines the term imported goods to mean goods which have not been cleared for home consumption;
On collective reading of the above provisions, the taxability of DTA sales by SEZ would be as under
- Supply (sale / removal) of goods into DTA will be considered as import of goods into India. The said supply will attract customs duty including IGST under the Customs Tariff Act, 1975;
- IGST has the powers to levy tax on supplies of goods made before the goods cross customs frontier and such transaction is outside the purview of CGST + SGST Act;
- The supply of goods which are still not imported are ejected out of the IGST Act, 2017 by proviso to Section 5 and hence will not be liable to IGST;
- Till the SEZ does not de-bond the goods by filing bill of entry for home consumption, these goods have not crossed customs frontier and according supplies made before the crossing of customs frontiers is an inter state transaction which will be liable to IGST payable under the Customs Law and will not be subjected to IGST on supplies to DTA;
- In addition to the above, following grounds can also be considered
- “Imported goods” has been defined under Customs Law but “goods imported” has not been defined. In this regard, it would be relevant to note that the expression “goods imported” has company of expressions “till they cross customs frontier”;
- If for some reason, we believe that “imported goods” are not equivalent to “goods imported” then the term “goods imported” would include goods cleared for home consumption in which case the relevance of “till they cross customs frontier” is lost since only goods which are not cleared for home consumption do not cross customs frontier. Accordingly, it would be safe to conclude that the terms “imported goods” and “goods imported” are referring to the same condition of the goods – Not cleared for home consumption; Additionally, supply of goods till they cross customs frontiers will be said to a transaction “in the course of import” which cannot be levied to tax based on the Article 286 (1)(b) of the Constitution of India. “Supply of goods imported into territory of India” has been deemed to be supply in the course of inter-state trade or commerce but “Supply of goods in the course of import into territory of India” has not been deemed to be a supply of goods in the course of inter state trade and commerce and hence even on this count, goods sold by SEZ to DTA will not attract IGST.
- While the interpretation of multiple provisions provide us with the answer that supplies by SEZ to DTA would not attract IGST, majority of the SEZ are clearing the goods on payment of IGST on the ground that the credit of such tax is anyways available to the DTA and with a fear that in case the demand is confirmed on them at a later point in time then they will not be able to recover the same from their customers and the time limit of credit availment by the customer would have also expired;
- We understand that representations have been made on this issue and we may have to wait for the same before we conclude on the tax position.