+
Gujarat AAR: SEZs May Dodge IGST on Specified Services
ECONOMY & POLICY

Gujarat AAR: SEZs May Dodge IGST on Specified Services

In a significant development, the Gujarat-based Authority for Advance Rulings (AAR) has delivered a ruling that might offer relief to units operating within special economic zones (SEZs) from paying the integrated goods and services tax (IGST) on specific services procured from the domestic tariff area (DTA) under the reverse charge mechanism.

The ruling, which sets a potential precedent, states that SEZ units could potentially sidestep the IGST obligation on designated services if they furnish a letter of undertaking (LUT) or a bond as specified by the government.

This decision comes in the wake of a case involving Waaree Energies Ltd, a Surat-based SEZ unit engaged in solar module manufacturing, which sought clarification on the procurement of services.

Under normal circumstances, service providers are liable to pay Goods and Services Tax (GST) to the government. However, under the reverse charge mechanism, it is the recipient of services who bears this responsibility.

The AAR ruling addresses a longstanding ambiguity highlighted by the Tax Research Unit (TRU) at the Central Board of Indirect Taxes and Customs (CBIC). While a clarification by the TRU previously indicated that SEZ units can avail services subject to GST under the reverse charge mechanism without IGST payment upon furnishing an LUT, the AAR ruling now substantiates this stance.

Sandeep Sehgal, a partner at tax and consulting firm AKM Global, emphasized the significance of this ruling for SEZ-based businesses. "It aligns with the zero-rated intent of the GST Act as clarified by the TRU, allowing SEZ units to source services without the burden of Reverse Charge Mechanism (RCM)," he stated. "This ruling not only eases compliance for SEZ-based businesses but also fosters a more conducive environment for growth and investment in SEZs."

With this ruling potentially setting a precedent, it could pave the way for smoother operations and reduced tax liabilities for businesses within SEZs, further bolstering India's economic landscape.        

In a significant development, the Gujarat-based Authority for Advance Rulings (AAR) has delivered a ruling that might offer relief to units operating within special economic zones (SEZs) from paying the integrated goods and services tax (IGST) on specific services procured from the domestic tariff area (DTA) under the reverse charge mechanism.The ruling, which sets a potential precedent, states that SEZ units could potentially sidestep the IGST obligation on designated services if they furnish a letter of undertaking (LUT) or a bond as specified by the government.This decision comes in the wake of a case involving Waaree Energies Ltd, a Surat-based SEZ unit engaged in solar module manufacturing, which sought clarification on the procurement of services.Under normal circumstances, service providers are liable to pay Goods and Services Tax (GST) to the government. However, under the reverse charge mechanism, it is the recipient of services who bears this responsibility.The AAR ruling addresses a longstanding ambiguity highlighted by the Tax Research Unit (TRU) at the Central Board of Indirect Taxes and Customs (CBIC). While a clarification by the TRU previously indicated that SEZ units can avail services subject to GST under the reverse charge mechanism without IGST payment upon furnishing an LUT, the AAR ruling now substantiates this stance.Sandeep Sehgal, a partner at tax and consulting firm AKM Global, emphasized the significance of this ruling for SEZ-based businesses. It aligns with the zero-rated intent of the GST Act as clarified by the TRU, allowing SEZ units to source services without the burden of Reverse Charge Mechanism (RCM), he stated. This ruling not only eases compliance for SEZ-based businesses but also fosters a more conducive environment for growth and investment in SEZs.With this ruling potentially setting a precedent, it could pave the way for smoother operations and reduced tax liabilities for businesses within SEZs, further bolstering India's economic landscape.        

Related Stories

Gold Stories

Next Story
Infrastructure Urban

Insurance is not a cost; it is protection for the balance sheet

As infrastructure projects grow larger and more complex, their risk profiles are evolving beyond physical damage. Underinsurance, business interruption, supply-chain disruptions, climate volatility, surety and transactional exposures can all have significant financial consequences. Mohan Agrawal, Director and Business Lead - Construction, Infra & Warehousing, EDME Insurance Brokers, discusses these emerging risks and the gaps in conventional insurance practices in a conversation with KAVITA PARAB, CW. He explains why infrastructure players need to view insurance not merely as a cost, but a..

Next Story
Equipment

Optimising Earthmoving

Constituting India’s biggest fleet of construction equipment by type, earthmovers positively impact project outcomes and company bottomlines if best practices are adopted. Here’s a guide from CW.Select the right machineOne of the biggest challenges in using earthmovers isn’t machine failure but using the wrong machine configuration for the application, according to Chaitanya Bhagde, P&M Head, SHC Projects. “Unless equipment is deployed after considering the soil type, excavation depth, haul distance and production target, the application will face low productivity, longer time depl..

Next Story
Real Estate

We engineer the way architecture gets built

DALBIR SINGH, Founder, HAACE, on the company’s bespoke approach to translating ambitious architecture into precisely engineered and executed structures.What does bespoke construction mean to HAACE, and how is it different from conventional contracting?For HAACE, bespoke construction means choosing the construction methodology around the design rather than forcing the design into a standard template. Every project is studied around its architectural intent, structural requirements and execution challenges. We deliberately take on a limited number of projects because this approach demands atte..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

SPECIAL OFFER
QR Code