Governing Provisions
The relevant provisions of the law relating to Refund of unutilized ITC on account of supply of services to SEZ are reproduced below:
Section 26 of Special Economic Zones Act, 2005 exempts units/ developers in SEZ from payment of any duties or taxes on goods/ services procured from Domestic Tariff Area (DTA) for authorised operations.
Rule 30 of Special Economic Zones Rules, 2006 prescribes the requirement to obtain endorsement for goods/ services.
Section 16(3) of the IGST Act, 2017 provides that a registered person making zero rated supply shall be eligible to claim refund of unutilized input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed.
Section 16(1) ibid, provides that a Zero-rated supply is:
- export of goods or services or both; or
- supply of goods or services or both for authorised operations to a Special Economic Zone developer or a Special Economic Zone unit.
Section 54(3) of the CGST Act, 2017 provides that a registered person may claim refund of any unutilized input tax credit only in the following cases:
- zero-rated supplies made without payment of tax;
- where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council
Further, Section 54(4) ibid, requires that the application for refund shall be accompanied by such documentary evidence as may be prescribed to establish that a refund is due to the applicant.
Second proviso to Rule 89(1) of CGST Rules, 2017 provides that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the -
(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
(b) supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone
Explanation to Rule 89(1) ibid, provides that for the purposes of this sub-rule, "specified officer" means a "specified officer" or an "authorised officer" as defined under rule 2 of the Special Economic Zone Rules, 2006.
How to get Endorsement from the specified officer of the SEZ regarding receipt of services for authorized operations under second proviso to Rule 89(1)
Based on above provisions, it can be concluded that one of the primary requirements for claiming refund of unutilized ITC on account of supply of services to SEZ is to have an Endorsement from the specified officer of the SEZ regarding receipt of services for authorized operations under second proviso to Rule 89(1) ibid.
While there was already a functionality on SEZ Online system for facilitating endorsement of procurement of goods by SEZ from DTA as "Zero Rated Goods for Authorised Operations" and the data was already being shared with GSTN through DG Systems, there was no such system to get such Endorsement regarding receipt of services and the above provision to get invoices endorsed by SEZ officers became a hurdle in getting refund of such unutilised ITC.
After getting feedback and demand from DC Offices and SEZ Units that SEZ Online system should facilitate endorsement of Service Invoices also. A new Module to record and submit details of all Invoices pertaining to Services availed by SEZ Units / Developers from DTA Suppliers as "Zero Rated Supply for Authorised Operations" was introduced from October 2019 onwards called as "DTA Service Procurement Form (DSPF)"
Working of Module
Units / Developers / Co-developers will be able to submit details of service invoices for services availed from DTA during a month at SEZ Online system. Details of multiple invoices, issued by multiple different DTA suppliers during a month can be uploaded in a single transaction and submitted to DC Office for review and endorsement. Upload macro is available at (www.sezonline-ndml.com/Downloads/Manual & File Format / DTA Service Procurement Form /Version 1.0)
Features of DSPF Form
- Multiple invoices issued by multiple/ different DTA suppliers during a month can be uploaded in a single go and submitted to DC Office for review and endorsement.
- Entire process of uploading DSPF, Approval/Endorsement by SEZ officers is online including the acknowledgement to DTA that the services procured by SEZ unit is approved is sent to registered mail ID of DTA service provider.
- Excel template has been provided to fill the necessary details and must be attached with DSPF form.
- After submission of DSPF, it will be forwarded to Authorised officer (AO) for review and approval. AO can either approve the form (or) refer to specified officer (SO)for review and approval.
Issues with DSPF
Services procured prior to October 2019
SEZ online system, through Notice dated 5th Sep 2019, specifies that details of all service procurements online through DSPF form may be implemented as a mandatory process for service procurement from October 2019 onwards. However, there is lack of clarity in relation to endorsement for services procured prior to October 2019. Based on feedback from members, it appears that some jurisdictions have been insisting the units to provide DSPF endorsement for services provided between July 2017 to September 2019.
Issues in providing documents for approval of DSPF
With the introduction of DSPF, SEZ units can obtain endorsement for services procured for authorised operations of SEZ. However, the units receive a large number of invoices in relation to services procured without payment of GST. Moreover, several documents/ details are mandatorily required to be submitted while making an application in DSPF (such as Letter of Undertaking [LUT] number, tax invoice copy, invoice payment details, supplier's details, mapping of service with authorised list of services issued by SEZ authority, etc.)
- LUT Number - Many suppliers do not provide details of LUT number. As a result, SEZ units are required to do rigorous follow-ups with the supplier for getting the details.
- Invoice payment details - Units are required to provide supplier's invoice payment details in DSPF. It is a time-consuming activity to pull out payment details from bank payment and ERP for each payment. Further, the unit will not be able to apply for DSPF if the payment has not been made to the supplier. This adds to compliance burden of the SEZ unit.
Reporting of same data at multiple places
The Government has mandated applicability of e-invoicing for taxpayers with annual turnover exceeding INR 5 crore from January 1, 2023. The e-invoicing schema requires reporting of transaction on Invoice Registration Portal (IRP) for generation of Invoice Reference Number (IRN) and QR code. Since supplies to SEZ units/developers are covered under e-invoicing, the invoice-wise data are first made available with the GST authorities through IRP run by National Informatics Centre (NIC). The same data is submitted again to SEZ authorities for endorsement of invoices which entails reporting of data at multiple places and involves additional time and efforts on the part of taxpayer.
Delay in receipt of endorsed tax invoices
This is leading to rejection of GST refund claims.✓ Minimum 2-3 attempts have to be made by DTA supplier along with SEZ customers for endorsements. ✓ Even in this era of digitisation, officers insist on physical documents and that too original copy of invoice.
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