Supply of Accommodation Services to SEZ units is for Authorized Operations, Covered Under ‘Zero-Rated Supplies’: AAR [Read Order]

In a recent case the Authority on Advance Ruling (AAR) in Karnataka held that the supply of accommodation services to the SEZ Units is for  Authorized operations, covered under “zero-rated supplies”, and for non-authorized operations, then it would be not covered under “zero-rated supplies” under Section 16(1) of the IGST Act, 2017.

Smt. Poppy Dorothy Noel, Proprietrix, M.s The Pommels, having GSTIN number 29 ABRPN8421E1ZA, has sought Advance Ruling on Whether the IGST at 0% is applicable for the invoices raised to the SEZ Units, even if the accommodation services were rendered outside the SE Zone?

The applicant submitted that she is in the business of providing accommodation services to various corporates in Bengaluru and they include certain SEZ Units. However, “The Pommels” is located in Kalyan Nagar, Banaswadi which is outside the SEZ Zone. The applicant is providing accommodation services to the SEZ Unit employees for which the SEZ Unit had advised them to raise invoices with IGST at 0% as per section 16 of the IGST Act, 2017. The applicant states that as per Section 12(3) of the IGST Act, which determines the place of supply, since the supply has taken place outside the SEZ Zone, they are not entitled to IGST at 0%, but need to be charged IGST @ 18%.

The authority comprising of  Sri. Harish Dharnia, Addl Commissioner of Central Tax, Member and Dr. Ravi Prasad M.P. Joint Commissioner of Commercial Taxes Member held that the transaction of the applicant is verified and found that the applicant is providing accommodation services to the employees of the SEZ Company and invoices are raised to the Company. The consideration for the accommodation services provided is payable by the company which is an SEZ Unit and hence as per clause (93) of section 2 of the CGST Act, 2017, the SEZ Unit would be the recipient of service and the supplier being the applicant. It would be covered under 7(5)(b) of the IGST Act and would hence be treated as an inter-State supply of services, provided that the supply of services made to the SEZ Unit is an authorized operation under the SEZ Act.

The applicant has also provided the copy of the Circular No.2/2014 issued by the Development Commissioner, Office of the Zonal Development Commissioner to all Developer, Co-Developers and Units of SEZs located in Kerala and Karnataka, in which it is stated that the Accommodation Services are added to the list of services to enable the SEZ Units to avail service tax benefits for their authorized operation. In view of the above, if the SEZ Unit is procuring the accommodation services for their authorized operation, the same would be covered under “supply to SEZ Units” and hence would be inter-State supplies and would be a “zero-rated supply” under sub-section (1) of section 16 of the IGST Act, 2017. In case of services provided to the SEZ Unit is not for authorized operations, then they would not be treated as supplies to SEZ Units and would not be covered under the zero-rated supplies but still would be a transaction covered under IGST Act, 2017 and taxable at 18% with the place of supply is the provision of such services.