GST Applicability on Local Procurement by Manufacturers Registered under MOOWR 2019 as Private Bonded Warehouse

The Legislature enacts special provisions that supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit shall be treated as supply of zero rated. (Section 16 (1)(b) of the IGST Act, 2017)

Being in a SEZ can be advantageous to a certain extent when it comes to taxes. Any supply of goods or services or both to a Special Economic Zone developer/unit will be considered to be a zero-rated supply. That means these supplies attract Zero tax rate under GST. In other words, supplies into SEZ are exempt from GST and are considered as exports. Therefore, the suppliers supplying goods to SEZs can:

· Supply under bond or LUT without payment of IGST and claim credit of ITC; or

· Supply on payment of IGST and claim refund of taxes paid.

When a SEZ supplies goods or services or both to any one, it will be considered to be a regular inter-state supply and will attract IGST. The exception to this is, when a SEZ supplies goods or services or both to a Domestic Tariff Area (DTA), this will be considered as an export to DTA (Which is exempt for the SEZ) and customs duties and other Import duties will be payable by the person receiving these Supply in DTA.

However, similar exemptions are not extended to the units registered under MOOWR 2019, which will create unnecessary ITC accumulations for the exporters, which seems to be clear discrimination between SEZ & PBW and violation of Article 21 of Indian constitution too.

Under PLI, there is a commitment from each PLI holders that they will create 15-50% value addition in next 5 years, if it is the case, then units registered under MOOWR 2019 will incur huge financial cost just because of such discriminations. Need to fix it at par with SEZ units to avoid any additional financial burden on the manufacturers. More importantly it will be a revenue neutral arrangement only.

Therefore, in my view we must take up this matter with CBIC/GST Council for extending GST exemption to PBW units asap.