Compensation Paid for setting up of SEZ will be considered as ‘Supply of Services’, GST payable: AAR [Read Order]

The Goa Authority for Advance Ruling (AAR) held that compensation paid for setting up of Special Economic Zone (SEZ) unit will be considered as a ‘supply of services’ under Goods and Service Tax (GST) Act and GST will be payable.

The applicant, in this case, is the M/s Goa Industrial Development Corporation (GIDC), which in turn is a government undertaking. The corporation undertook the contracts where it leased the lands to the parties in order to make the particular area Special Economic Zone (SEZ) unit. However, there was a mass protest against this project and the project failed. And in the consequence of the failure, all the leaseholders asked the government undertaking i.e. M/s Goa Industrial Development Corporation (GIDC) to compensate all the losses which are incurred by the parties to the lease agreement. Earlier it denied but later on, it had to compensate at the rate of 8.25% to the parties to the lease agreement as per the orders of the Supreme court.

However, the issue raised in this context was whether the compensation paid for setting up Special Economic Zone (SEZ) which will be paid to the parties of the lease agreement would be considered as a ‘Supply of Services’ under the GST  payable Act or not?

Wherefore, the bench comprising of J.K. Meena, a member and Sartia S. Gadgil affirmed in this case that the compensation paid to all the parties by the M/s Goa Industrial Development Corporation (GIDC) will be considered to be the ‘Supply of Service’ under Goods and Service Tax (GST) Act. Therefore, the applicant which is a government undertaking is liable to pay tax on all the compensation which will be given to the parties to the agreement.