Hotel or restaurant services provided to SEZ developers or units will not be treated as 'zero-rated' supplies and hence will be taxable under the Goods and Services Tax (GST) regime, the Authority for Advance Ruling (AAR) has said.
In an application filed before the Karnataka bench of the AAR, the applicant had sought to clarify whether hotel accommodation and restaurant services provided by them, within the premises of the hotel, to the employees and guests of SEZ units be treated as supply of goods and services.
"The hotel accommodation and restaurant services being provided by the applicant, within the premises of the hotel, to the employees and guests of SEZ units, cannot be treated as supply of goods and services to SEZ units in Karnataka and hence they are the intra-state supply and are taxable accordingly," the AAR order said.
In the earlier service tax regime, the law provided that only services which are labelled as "authorised operation" will be treated as zero-rated supply to the SEZ. Such operations included supply of machinery, contractor, among others.
Experts said GST laws did not specify which goods and services would be considered as "authorised operations" which created confusion about their taxability.
Section 16 of the Integrated GST (IGST) Act, supply of goods or services or both to a special economic zone (SEZ) developer or unit are treated as 'zero-rated supply'.
Besides Section 12 of the IGST Act defines the 'place of supply' of services by way of lodging accommodation by a hotel or for providing restaurant and catering services as the location where the services are actually performed.
"In the instant case, 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," the AAR said.
The rendition of services of restaurant, short term accommodation and banqueting or conferencing cannot be said to have been 'imported or procured' into SEZ unit or developer and therefore, the supply is intra-state supply, it said.
AMRG & Associates Partner Rajat Mohan said this ruling lays down that supplies made for 'authorised operations' shall only be treated as supplies to SEZ developer/SEZ unit and would be zero-rated.
"Thereby every supplier to SEZ unit/ SEZ developer needs to check the taxability of the transactions that are aimed at other than authorised operations even though consumption is taking place in SEZ. Service providers to SEZ, especially hospitality industry, might get a tax demand with effect from July 2017, wherein the supplies were made to SEZ," Mohan said.
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