Circulars clarifying miscellaneous issues related to SEZ and refund of unutilized ITC for job workers.

Circular No.: 48/22/2018-GST
Date of Circular: 14th June 2018
Relevant Sections and Rules:

• Integrated GST Act, 2017:
  • Section 7(5)(b): Inter-State supply to SEZ
  • Section 12(3)(c): Place of supply for accommodation services
  • Section 16(1) & 16(3): Zero-rated supply to SEZ
• Central GST Act, 2017:
  • Section 54(3): Refund of unutilized ITC
  • Section 17(5): Blocked credit
• CGST Rules, 2017:
  • Rule 89(1): Refund procedure
• Notification:
  • Notification No. 5/2017-Central Tax (Rate) dated 28.06.2017

Summary of Circular:

This circular addresses important clarifications related to SEZ supplies, zero-rated benefits, and refund for job workers in the textile sector, ensuring uniformity in the application of GST provisions.

1. Tax Treatment of Accommodation & Banquet Services to SEZ Units:

• Despite Section 12(3)(c) stating that the place of supply for accommodation is the location of the property,
• Section 7(5)(b) is a specific provision stating that all supplies to SEZ shall be treated as inter-State supply.
• Therefore, short-term accommodation, conferencing, banqueting services provided to SEZ units shall be treated as inter-State supply, i.e., IGST applicable.

2. Zero-Rated Supply Eligibility for SEZ Procurements:

• As per Section 16 of the IGST Act and Rule 89(1), only supplies received for authorized operations, as endorsed by the SEZ officer, are eligible for zero-rating and refund.
• This applies to services like event management, hotel/accommodation, and consumables.
• Suppliers can claim refund of IGST or unutilized ITC only if endorsed by SEZ officer for authorized operations and subject to ITC eligibility under Section 17(5).

3. Refund of Unutilized ITC to Independent Fabric Processors (Textile Sector):

• Notification No. 5/2017 restricts refund of ITC for certain goods, including fabrics.
• However, fabric processors/job workers supply services (not goods).
• Therefore, they are eligible to claim refund of unutilized ITC on account of inverted duty structure under Section 54(3), even if the fabrics they process are covered under Notification No. 5/2017.

Source: Circular No.: 48/22/2018-GST