Challenges in applying for DTA Services Procurement Form for obtaining endorsement of services in Special Economic Zones

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Challenges in applying for DTA Services Procurement Form for obtaining endorsement of services in Special Economic Zones

Tejasvi

@tejasvi

January 25, 2023

Public Policy

1160

Background:

S. 26 of Special Economic Zones Act, 2005 (SEZ Act) exempts units/ developers in SEZ from payment of any duties or taxes on goods/ services procured from Domestic Tariff Area (DTA) for authorised operations.

S. 16 of Integrated Goods and Services Tax Act, 2017 (IGST Act) provides for the facility of zero-rated supply of goods/ services to SEZ units for authorised operations. Rule 30 of Special Economic Zones Rules, 2006 (SEZ Rules) prescribes the requirement to obtain endorsement for goods/ services. Further, as per Rule 89 of Central Goods and Services Tax Rules, 2017 (CGST Rules), the application of refund for supplies made to SEZ unit/ developer shall be filed by:

supplier of goods after such goods have been admitted in full in SEZ for authorised operations, as endorsed by the specified officer of the Zone.
supplier of services along with evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone.

The Industry, in the past, had been facing lot of issues in obtaining endorsement for services procured in SEZs. In this regard, the Ministry of Commerce and Industry (MoCI) introduced the SEZ Online system which enables electronic filing and processing of SEZ related transactions that SEZ developers, co-developers and units have with SEZ administration.

Issues:

Based on feedback from members, we have made a submission to MoCI and GST Policy Wing highlighting the following issues:

Insistence by SEZ authorities to provide DSPF for services procured prior to October 2019: SEZ online system, through Notice dated 5th Sep 2019, specifies that details of all service procurements online through DSPF form may be implemented as a mandatory process for service procurement from October 2019 onwards. However, there is lack of clarity in relation to endorsement for services procured prior to October 2019. Based on feedback from members, it appears that some jurisdictions have been insisting the units to provide DSPF endorsement for services provided between July 2017 to September 2019.
Issues in providing documents for approval of DSPF: With the introduction of DSPF, SEZ units can obtain endorsement for services procured for authorised operations of SEZ. However, the units receive large number of invoices in relation to services procured without payment of GST. Moreover, a number of documents/ details are mandatorily required to be submitted while making an application in DSPF (such as Letter of Undertaking [LUT] number, tax invoice copy, invoice payment details, supplier’s details, mapping of service with authorised list of services issued by SEZ authority, etc.).

✓ LUT Number - Many suppliers do not provide details of LUT number. As a result, SEZ units are required to do rigorous follow ups with the supplier for getting the details.

✓ Invoice payment details - Units are required to provide supplier’s invoice payment details in DSPF. It is a time-consuming activity to pull out payment details from bank payment and ERP for each payment. Further, the unit will not be able to apply for DSPF if the payment has not been made to the supplier. This adds to compliance burden of the SEZ unit.

✓ XML file – Sometimes, the SEZ portal does not accept the xml upload file if any required information is missing. Further, in case of any technical glitches, the portal does not show the exact error message. This results in confusion for the units.

Inconsistency in the process for obtaining endorsement: The existing process of endorsement of invoices are not consistent in all the SEZ zones:

✓ As per Rule 30(4) of SEZ Rules, endorsement process for goods must be completed within 45 days. However, most DTA suppliers provide a credit period beyond 45 days.

✓ Tax authorities in certain zones are refusing to endorse the invoices where the payment is not made for the invoices.

✓ Members are facing challenges in getting endorsements for goods delivered on courier mode.

✓ The DSPF portal was introduced to ease up and automate the endorsement procedure for invoices relating to procurement of services. However, it is observed that majority of the endorsements still involves manual submissions and follow ups.

Delay in receipt of endorsed tax invoices: This is leading to rejection of GST refund claims.

✓ Minimum 2-3 attempts have to be made by DTA supplier along with SEZ customers for endorsements.

✓ Even in this era of digitisation, officers insist on physical documents and that too original copy of invoice.

Reporting of same data at multiple places:

✓ The Government has mandated applicability of e-invoicing for taxpayers with annual turnover exceeding INR 5 crore from January 1, 2023.

✓ The e-invoicing schema requires reporting of transaction on Invoice Registration Portal (IRP) for generation of Invoice Reference Number (IRN) and QR code. Since supplies to SEZ units/developers are covered under e-invoicing, the invoice-wise data are first made available with the GST authorities through IRP run by National Informatics Centre (NIC).

✓ The same data is submitted again to SEZ authorities for endorsement of invoices which entails reporting of data at multiple places and involves additional time and efforts on the part of taxpayer.

Recommendations:

We have requested MoCI and GST Policy Wing to consider the following recommendations:

During the Service Tax era, a one-time approval was provided to each supplier for services rendered to SEZ units. Notification 40/2012-Service tax, dated June 20, 2012 was issued to provide exemption to services on which service tax is leviable under S. 66B of the said Act, received by SEZ unit/ developer and used for authorised operations, from whole of service tax, education cess and secondary and higher education cess leviable thereon. Similar practice can be followed under GST to avoid invoice-wise approvals through DSPF.
In addition, in the present era of digitisation, the authorities have taxpayer’s data in digital form. Thus, we recommend the following:

✓ All invoices issued by DTA suppliers are required to be reported on IRP except in few cases (Bank, NBFC, GTA etc). The said data should be made available on SEZ online system in Json signed by IRP as required in DTA procurement form for goods and DSPF for services. SEZ online should accept digitally signed e-invoice received from IRP. The details reported on IRP are same as required in DTA procurement form and DSPF. This will ensure real time availability of data to SEZ authorities.

✓ SEZ authorities should validate the data based on information provided by IRP and approve for endorsement on real time basis.

✓ Besides, where taxpayers are not required to report transactions to IRP for IRN generation, invoice details should be made available from GST portal to SEZ authorities based on actual filing of returns (i.e., GSTR-1 where each B2B invoice and export invoice is reported) by the taxpayers.

✓ There should be an API based integration of SEZ online with GST System. GST System has been developed as a platform and they share APIs for integration with other departments/agencies. For processing refund of IGST paid on exports, the export invoices are today shared by GST system with Customs System (ICEGATE) using APIs.

✓ The same integration is recommended for SEZ-Online system as well. This will help GST authorities in getting data of supplies from SEZ to taxpayers located in DTA for sharing of IGST paid on such supplies. Similar integration already exists between Customs and GST System.

These measures will facilitate ease of doing for the taxpayers.

We hope you will find the update useful. In case you have any query, please write to tejasvi@nasscom.in

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Tejasvi