GST: Submission requesting for removal of restriction on zero rating benefit under GST for units in Special Economic Zones for facilities /amenities like canteen, first aid centre etc.

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GST: Submission requesting for removal of restriction on zero rating benefit under GST for units in Special Economic Zones for facilities /amenities like canteen, first aid centre etc.

Tejasvi

@tejasvi

March 26, 2021

Public Policy

231

As you are aware, Information Technology (IT) industry is dependent on its human capital which forms its core resource. Thus, employee wellness and welfare are integral part of businesses of IT companies.

As per Rule 11(5) of Special Economic Zones Rules, 2006 (SEZ Rules), units in SEZ are allowed to setup canteen, public telephone booths, first aid centres, crèche and such other facilities subject to prior approval from the Approval Committee. These facilities, especially canteen and first aid centres, form integral part of units operating out of SEZs. Units invest in these facilities to provide better working environment to employees, which in turn helps to improve efficiency of employees. In fact, in many cases. providing such facilities to employees forms part of Human Resource Policy of companies.

SEZ units were hitherto procuring goods and services for setting up and operating these facilities without payment of any duty by availing exemption as provided for in S.7 and 26 of SEZ Act, 2005. Further, these supplies were also treated as “zero rated supply” under Goods & Services Tax (GST) as per S. 16 of Integrated Goods & Services Tax Act, 2017 (IGST Act). However, Ministry of Commerce & Industries, vide Instruction No 95 dated 11th June 2019 (Instruction), has directed that units setting up facilities/ amenities under Rule 11(5) of SEZ Rules will not be eligible for SEZ benefits and all procurements for setting up and operation of these facilities will have to be made on payment of applicable duties. Moreover, in the Finance Bill 2021, the government has proposed amendments to S. 16(b) of IGST Act to restrict benefit of zero-rated supplies under GST only for supplies made towards authorised operations.

As a result of issue of Instruction 95, SEZ units/ developers had procured supplies for setting up these facilities, on payment of custom duties. Further, revenue authorities may exclude such supplies from the purview of “zero rated supply” post amendment in S.16(b) of IGST Act, as proposed in Finance Bill, 2021.

While SEZ units may be able to avail Input Tax Credit (ITC) of GST paid by it on procurements, certain credits may be blocked in terms of S. 17(5) of Central Goods & Services Tax Act, 2017 (CGST Act) (i.e. canteen, personal consumption etc). • As a result, no refund of such ITC would be available under Rule 89 of Central Goods & Services Tax Rules, 2017 (CGST Rules), leading to increase in cost of supplies made by such SEZ units.

In this regard, NASSCOM has made a representation to GST Policy Wing on March 26, 2021 requesting them to withdraw Instruction No 95 dated 11th June 2019. Alternatively, it should only be made effective for facilities that are commonly used for unit holders and public. We have also requested that amendment suggested to S. 16(b) IGST Act to limit the scope of ‘zero-rated’ supplies to procurements ‘used for authorised operations’ should also be done away with. This could lead to unnecessary interpretational issues.

We hope you will find the update useful. We will keep you posted on further developments in this regard.

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Tejasvi

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