By this time, the entire trade has understood the concept of inter and intra state supplies and happily charging the applicable taxes. Needless to say, if a supply is an intra-state, Central Goods & Services Tax (CT) and State Goods & Services Tax (ST) shall be applicable and if the supply is inter-state, then integrated tax (IT) shall be applicable. Arithmetically, IT is nothing but a summation of CT and ST.
There are sections which determines the nature of supply as inter and intra. Section 7 of Integrated Goods
- Services Tax Act, 17 (IGST Act) deals with the inter-state supply, where in it states, if the location of supplier and place of supply are in two different states, two different union territories and a state and a union territory, then such supply is to be treated as inter-state supply. Apart from the above, the section also lays down specific transactions which are to be treated as inter-state supply, which we shall discuss in the later part of this article.
In similar way, Section 8 of IGST Act deals with intra-state supply, where in it states, if the location of supplier and place of supply are in the same state or union territory then such supplies shall be treated as intra-state supplies. Further, Section 8 also lays down certain specific instances, where in such transactions are not to be treated as intra-state supply.
From the above, it is evident that two aspects are important for determination of nature of supply being intra or inter. One being the location of supplier and the other is place of supply. The phrase ‘location of supplier’ has been defined only for services and not for goods. Hence, for goods, it has to be understood that the place of business of supplier is to be treated as location of supplier. For determination of ‘place of supply’, there are four sections, namely Section 10, Section 11, Section 12 and Section 13. Section 10 and Section 11 deals with place of supply of goods and Section 12 and Section 13 deals with place of supply of services.
Section 10 deals with place of supply of goods in cases other than exports or imports, Section 11 deals with place of supply of goods in case of exports or imports. Section 12 deals with place of supply of services where the location of service recipient and location of service provider are located in India and Section 13 deals with place of supply where either the location of service recipient or service provider is outside India.
The above is the general legislation available to determine the nature of supply as either inter or intra. Coming to specific instances as stated earlier, Section 7(5) and proviso to Section 8(1), one of such instance is the supplies made to or by SEZ unit or SEZ developer. Section 7(5)(b) specifically states that supply of goods or services or both to or by a SEZ developer or SEZ unit shall be treated as supply of goods or services or both in the course of inter-state trade or commerce. Further, proviso to Section 8(1) specifically states, supply of goods to or by a SEZ developer or a SEZ unit shall not be treated as intra-state supply. The proviso to Section 8(2) lays restriction for services provided to SEZ unit or developer as not to be treated as intra-state supply.
Hence, from the above, what transpires is, any supply of goods or services or both to a SEZ unit or developer by express terms of Section 7(5) to be treated as inter-state supply and by express restrictions through provisos to Section 8(1) and 8(2), they are not be treated as intra-state supplies. Further, Section 16 of IGST Act states that supplies to a SEZ unit or developer shall be treated as ‘zero rated supplies’.
With this above background, let us try to solve the following question “Whether the Hotel
Accommodation & Restaurant services provided by them, within the premises of the Hotel, to the employees & guests of SEZ units, be treated as supply of goods & services to SEZ units in Karnataka or not?’’
This is exactly the question before the Authority for Advance Ruling (AAR) of Maharashtra in the case of M/s Gogte Infrastructure Development Corporation Limited. The relevant paras of the judgment are as under:
- Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit are treated as 'Zero Rated Supply' in terms of Section 16(1)(b) of IGST Act’ 2017. Further Rule 46 of CGST Rules 2017 stipulates that the invoice shall carry an endorsement “Supply meant for export / Supply to SEZ unit or SEZ Developer for authorised operations on payment of Integrated Tax” or “Supply meant for Export / Supply to SEZ unit or SEZ Developer for authorised operations under Bond or Letter of Undertaking without payment of Integrated Tax” as the case may be.
- Therefore on reading Section 16(1)(b) of IGST Act' 2017 & Rule 46 of CGST Rules 2017 together it is clearly evident that the supplies of goods or services or both towards the authorised operations only shall be treated as Supplies to SEZ Developer /SEZ Unit.
- The place of supply of the services by way of lodging accommodation by a hotel, shall be the location at which the immovable property (hotel) is located or intended to be located, as per Section 12 (3)(b) of the Integrated Goods and Services Tax Act, 2017. Also, the place of supply of restaurant and catering services shall be the location where the services are actually performed, as per Section 12 (4) of the Integrated Goods and Services Tax Act, 2017. In the instant case, admittedly, the applicant is located outside the
SEZ. Therefore, the services rendered by the applicant are neither the part of authorised operations nor consumed inside the SEZ.
- Since place of provision of services in case of Hotel has been prescribed under the Act 'location of the
Hotel' the rendition of services of restaurant, short term accommodation and Banqueting/conferencing cannot be said to have been 'imported or procured' into SEZ Unit/ Developer. Hence, by no stretch of imagination and therefore, in the instant case, the supply is intra state supply.
The judgment has referred to provisions of Section 16 of IGST Act, Rule 46 of CGST Rules and Section 12 of IGST Act and has arrived at a conclusion that since Section 12(3) and (4) states the place of supply as the location of hotel, the supply is to be treated as intra-state.
However, the judgment has failed to examine the specific provisions of Section 7(5) and proviso to Section 8(1) and (2), which deal with supplies of goods or services to SEZ unit/developer to be treated as inter-state supplies and not intra-state supplies. Further, the role of Section 12 is only to determine the place of supply and not to decide whether the nature of supply is intra or inter. The role to determine whether a supply is intra or inter is vested with Section 7 and Section 8 and not Section 12 and hence the judgment passed by placing huge reliance on text of Section 12 might not stand before the higher forums.
Further, the judgment stated that the hotel/accommodation services were not used for authorised operations and hence cannot be treated as zero rated supplies in terms of Section 16 read with Rule 46 of CGST Rules. In our opinion, this aspect of judgment also suffers from vice because the judgment puts an additional condition that such services should be used for authorised operations which was not at all spelt in Section 16 of IGST Act. Section 16 states that supplies made to SEZ unit or developer shall be treated as zero rated supplies and does not put any condition that such services should be used only for authorised operations.
Hence, in our opinion the judgment delivered by AAR suffers from completeness and hence cannot be relied upon and we suggest that in terms of express provisions under Section 7(5) and Section 8(1) the supplies to SEZ units/developers shall still be treated as Inter-State supply and not Intra-State supply. Further, our view is also supported by CBIC Circular 48/22/2018-GST dated 14th June 2018 confirms our view.
