Update: SEZ | Clarification on Instruction 95 | nasscom | The Official Community of Indian IT Industry

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Update: SEZ | Clarification on Instruction 95

Tejasvi

@tejasvi

October 5, 2023

Public Policy

259

This is in relation to Instruction 95 issued by the SEZ Division of the Ministry of Commerce and Industry in June 2019.

The Instruction states that SEZ unit may be permitted to set-up facilities/amenities such as cafeteria, crèche, gymnasium etc., subject to obtaining the necessary statutory approvals/No-objection Certificate (NOCs) by the Unit. The Instruction further stated that for setting-up or operating these facilities, the unit shall not be eligible for any exemption, drawback, concessions or other benefits available under Section 7 or 26 of Special Economic Zones Act, 2005 (SEZ Act).

Further, Rule 11(5) of Special Economic Zones Rules, 2006 (SEZ Rules) under which the said instruction was issued, states that “the land or built up space in the processing area or Free Trade and Warehousing Zone shall be given on lease only to the entrepreneurs holding a valid Letter of Approval issued under rule 19 and the lease period shall not be less than 5 years but notwithstanding any other condition in the lease deed, the lease rights would cease to exist in case of the expiry or cancellation of the Letter of Approval :

Provided that the Developer may, with the prior approval of the Approval Committee, grant on lease land or built up space, for creating facilities such as canteen, public telephone booths, first aid centres, creche and such other facilities as may be required for the exclusive use of the Unit.”

Therefore, on a conjoint reading of the above, it was clear that SEZ unit can set up the above facilities/amenities for its exclusive use. However, the benefit of S. 7 or 26 of SEZ Act (duty free) will not be available for procurement and maintenance of assets or expenses for setting up/creating /operating such facility. Accordingly, exemption/ zero rating benefit was not availed by most developers for the lease rentals charged towards such facilities.

Relying on instruction 95, officers at the ground level were notices to SEZ units for denying zero-rating benefit under Goods and Services Tax (GST) on lease rental services provided by developers to tenants/ SEZ units on such portion of space used for creating employee welfare facilities.

In this regard, Ministry of Commerce and Industry has now issued a clarification on Instruction no 95 dated October 3, 2023 to clarify that zero rating benefit under GST continues to be available for lease rental /other charges collected by Developer from units for the space utilised for creation of employee welfare facilities exclusively for the employees of SEZ units.

This is a welcome clarification and will provide relief to the industry.

We hope you will find the update useful.

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Tejasvi

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