AAAR Maharashtra – Applicability of Reverse Charge Mechanism (RCM) on SEZ unit procuring services from SEZ Developer/ DTA

• Portescap India Private Limited  (‘the Appellant’) is a Special economic Zone (‘SEZ’) unit situated in Maharashtra and procured rental/ other services from Santacruz Electronic Processing Zone SEZ Authority (‘the SEZ Developer’) and Domestic Tariff Area units (‘DTA’)
• The Appellant sought an Advance Ruling with respect to levy of GST under RCM on receiving renting of immovable property services and other services from the SEZ Developer or DTA units
• The Authority for Advance Ruling (‘the AAR’) ruled that the Appellant is liable to discharge GST under RCM as a services recipient of renting of immovable property in light of the following facts:

• • The SEZ Developer is a local authority and services of renting of immovable property provided by a local authority to any person registered under GST (including SEZ) is liable for GST under RCM as per Notification No. 10/2017-Integrated Tax (Rate) as amended from time to time (‘the Reverse Charge Notification’)

• • Section 16(2) of the IGST Act which provides for zero-rating of supply by registered person to SEZ unit does not apply to SEZ unit as a service recipient

• Being aggrieved by the ruling of the AAR, the Appellant filed an appeal before the Appellate Authority of Advance Ruling, Maharashtra (‘the AAAR’)

• Whether the Appellant is required to comply with the RCM provisions under GST as a service recipient in respect of renting of immovable property services procured from the SEZ Developer?
• Whether the Appellant is required to pay GST under RCM on any other services received from DTA?

• Any supply of goods or services or both made to a SEZ developer or a SEZ unit for carrying out the authorized operation in SEZ will be considered as zero-rated supply
• It is well settled proposition of the law that specific provision will have a greater legal force than that of a notification issued under the same law or any other provisions of the same Act. Supplies to a SEZ unit are zero rated supplies under GST, thereby specific provision will prevail over the Reverse Charge Notification
• Intention of the legislature is not to tax the supplies made to a SEZ unit situated in SEZ area. Further, supply to a SEZ unit is treated as zero-rated supplies irrespective of whether the supplier is located in SEZ or DTA
• SEZ unit or SEZ developers can procure such services for use in the authorized operation without payment of GST provided that the recipient furnishes LUT or bond as specified under the GST law
• The aforesaid principal will also be applicable in case of any other services which are supplied by the DTA service provider to the SEZ units or SEZ Developer.

In light of the above discussions, the AAAR held that the Appellant is not required to pay GST under RCM       on renting of immovable property and any other services received from the SEZ Developer or DTA units for     carrying out the authorized operations subject to furnishing of LUT/ bond (as deemed supplier of services)