Recent AAR pronounced by Karnataka ARA had kicked up a controversy when it held the that accommodation & restaurant services provided within premises of Hotel, to employees & guests of SEZ units cannot be treated as inter-state supply of goods and / or services chargeable to Nil GST (i.e. zero rated)
According to AAR, supplies of goods and / or services towards authorized operations only could be treated as supplies to SEZ Developer / unit. The AAR stated that the place of supply of services by way of lodging, accommodation by a hotel, would be location of immovable property, which is hotel as per Section 12(3)(b) of IGST Act, while place of supply in case of restaurant and catering services is the location where services are actually performed in terms of Section 12(4) of IGST Act. Since in this case, the applicant is located outside the SEZ, services rendered by it are neither part of authorized operations nor consumed inside SEZ.
The ruling held that rendition of services of restaurant, short term accommodation and banqueting / conferencing cannot be said to have been ‘imported or procured’ into SEZ unit which meant such services constitute ‘intra-State’ supplies and are taxable accordingly.
However, CBIC has now clarified that services of short term accommodation, conferencing, banqueting etc. provided to SEZ developer / unit shall be treated as ‘inter-state supply’ and not intra-state supply.
“It is an established principle of interpretation of statutes that in case of an apparent conflict between two provisions, the specific provision shall prevail over the general provision” and therefore, Section 7(5)(b) of IGST Act providing that supplies to SEZ developer / unit shall be treated as ‘inter-state supplies’ will apply,” said a Government circular.
CBIC went on to add that a conjoint reading of Section 16(1), 16(3) of IGST Act & second proviso to Rule 89(1) of CGST Rules reveals that supplies to SEZ shall be zero rated and the supplier shall be eligible for refund of unutilized ITC or IGST paid, as the case may be, only if such supplies have been received for authorized operations of SEZ.
Therefore, subject to provisions if event management services, hotel, accommodation services, consumables etc. are received by SEZ developer / unit for authorized operations, as endorsed by specified officer of the Zone, benefit of zero rated supply will be available to the supplier.
“Clarifying that services of accommodation, conferencing, banqueting etc. provided to SEZ by hotels would be treated as ‘inter-state supply’ and are eligible for zero rating has put to rest, the controversy created by a recent Karnataka Advance Ruling, which had held otherwise. What is heartening to know is that the Government was swift to act and has put the controversy to rest,” said Harpreet Singh, Partner, KPMG India.
CBIC in the same circular also deliberated if supply of event management services, hotel and accommodation services, consumables etc. would be zero rated (means whether they would be liable to Nil rate of tax).
It has now been clarified so long as the event management services, hotel, accommodation services, consumables etc. are received by a SEZ developer or a SEZ unit for authorised operations, as endorsed by the specified officer of the Zone, the benefit of zero rated supply will be available in such cases to the supplier.
“Clarification on benefit of zero rating extending to event management, hotel and accommodation services etc. subject to fulfilment of certain conditions is a good move by the Government as ideally all procurements (goods or services) used by SEZ for business operations should not bear any tax. This standard practice is also followed in China and other countries, from where the concept of SEZ has been borrowed by India,” says Singh.