The Authority for Advance Rulings (AAR), Gujarat in the case of M/S. WAAREE ENERGIES LIMITED vide GUJ/GAAR/R/2024/09 dated 16.04.2024, has ruled that Units operating within special economic zones (SEZs) could potentially be exempt from paying the integrated goods and services tax (IGST) on specified services taken from the domestic tariff area (DTA) through the Reverse Charge Mechanism (RCM), subject to furnishing a LUT or bond as specified in condition (i) of para 1 of notification No. 37/2017-Central Tax dated 04.10.2017. 

Facts of the case:- In this case, The Applicant is engaged in the manufacture of solar modules. The Applicant avails services such as Goods Transport Agency (GTA), Legal services from Advocate, Security Services, Bus Hiring for employees (specified services) from Domestic Tariff Area for their SEZ Unit. Normally, providers of services have to pay Goods and Services Tax (GST) to the government, but it is the recipient of services who pays tax to the government on the reverse charge mechanism. 

The Applicant was of the belief that being an SEZ unit, they are not liable for GST under RCM. Further, Section 7 of SEZ Act 2005, provides for exemption to all services procured from a DTA or foreign suppliers specified in first schedule. Also, in terms of section 51 of the SEZ Act, 2005, the provisions of SEZ Act would have overriding effect on provisions of any other act including taxation laws. 

The Applicant has also raised an alternative plea that even assuming that RCM. notification ie notification No. 10/2017-IT (Rate), is applicable then also they could exercise the option of supply of services under LUT etc. without payment of IGST as provided in respect of supplies made from DTA to an SEZ unit specifically u/s 16(3) of the IGST Act, 2017.

Issue:- The Applicant sought advance rulings as to whether the applicant being an SEZ unit is required to pay tax under reverse charge mechanism on specified services in accordance with notification No. 10/2017-IT(Rate) dated 28.6.2017 as amended from time to time.

Ruling:- The AAR, Gujarat observed as under:

• Frequently asked questions (FAQs) dated 15.12.2018, issued by the government on the on the question of payment of IGST under RCM, when received by an SEZ unit has clarified that while the supplier of services in these cases is not liable to pay GST as the supply is under a reverse charge mechanism, SEZ has to pay IGST since the recipient is considered a deemed supplier.
• Also, as per notification No. 37/2017-CT, a unit in DTA can supply services to a unit in SEZ without payment of IGST subject to furnishing of LUT to the jurisdictional Commissioner.
• TRU, CBIC, vide letter F. No. 334/335/2017-TRU dated 18.12.2017, has issued a clarification that a unit in SEZ can procure such services where they are required to pay GST under the reverse charge mechanism without payment of integrated tax (IGST) provided the unit in SEZ furnishes a letter of undertaking. The clarification by CBIC was given in a case relating to legal services, sponsorship services received by an SEZ unit in International Financial Services Centre (IFSC) in Gandhinagar from a unit in DTA.
• It was observed that the above clarification was given to a specific SEZ unit and is not a circular but there is no bar in borrowing the rationale of the  aforesaid clarification.
• Therefore, the applicant an SEZ unit, can procure the services mentioned supra, for use in authorized operations without payment of IGST provided the applicant, furnishes a LET or bond as specified in condition (i) of para 1 of notification No. 37/2017-Central Tax.