According to a recent ruling by the Gujarat-based Authority for Advance Rulings (AAR), units operating within Special Economic Zones (SEZs) may potentially be exempt from paying the Integrated Goods and Services Tax (IGST) on specified services obtained from the Domestic Tariff Area (DTA) through the reverse charge mechanism. If this ruling sets a precedent, it could have significant implications for SEZ units.
In India, SEZs are designated areas that promote exports and offer several tax and duty benefits to businesses operating in these zones. The reverse charge mechanism refers to a provision under the Goods and Services Tax (GST) system where the recipient of goods or services is liable to pay the tax instead of the supplier.
Currently, SEZ units are obligated to pay IGST on services procured from the DTA through the reverse charge mechanism. However, the recent ruling by the Gujarat AAR suggests that SEZ units could potentially be exempt from this obligation. This exemption, if applicable, would result in cost savings for SEZ units, making them more competitive in the market.
It is important to note that this ruling is specific to the Gujarat AAR and may not have nationwide applicability until it is ratified or adopted by other AARs or tax authorities. However, this ruling sets a precedent that could potentially pave the way for other SEZ units across the country to seek similar exemptions from IGST on services from the DTA.
Businesses operating in SEZs should closely monitor the developments surrounding this ruling and consult with tax professionals to understand the implications for their specific operations.
