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.        

Next Story
Infrastructure Transport

NHAI Tightens Contractor Norms to Boost Highway Quality

The National Highways Authority of India (NHAI) has revised Request for Proposal (RFP) provisions to enhance the quality of highway projects, reduce delays, and lower lifecycle costs. The updates tighten contractor qualification norms, strengthen execution compliance, and increase financial transparency, the Ministry of Road Transport and Highways (MoRTH) said on Wednesday.The stricter RFP clauses will ensure that only technically capable and experienced contractors are eligible for national highway projects. RFPs formally invite bids from contractors, specifying project requirements, terms, a..

Next Story
Infrastructure Transport

Imphal to Gain Rail Connectivity with Jiribam Line Soon

Indian Railways is advancing rapidly on the Jiribam–Imphal railway line, a landmark project set to bring train connectivity to Imphal, the capital of Manipur. The 110.625 km line falls under the administrative control of the Northeast Frontier Railway (NFR) zone.Following the recent completion of the Bairabi–Sairang rail project, which enabled services from Aizawl (Sairang), Imphal will soon join the national rail network. During his visit to Manipur on 13 September 2025, Prime Minister Narendra Modi affirmed that the government is investing Rs 22 billion in the project.Currently, a 55.36 ..

Next Story
Infrastructure Transport

Adani to Double Colombo Terminal Capacity Ahead of Schedule

India’s Adani Group and its partners are set to double the capacity of the $840 million Colombo West International Terminal months ahead of schedule, despite relinquishing $553 million in U.S. funding, according to an executive at partner firm John Keells Holdings.The deepwater terminal, situated alongside a facility operated by China Merchants Port Holdings, highlights Sri Lanka’s strategic role in the contest for influence in the Indian Ocean between New Delhi and Beijing.The first phase of the fully automated terminal became operational in April 2025. The second and final phase is under..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Talk to us?