Supply to SEZ, Authorised Operations, and requirement of Endorsement – A Bundle of Tangle


The idea of Special Economic Zones  (SEZ) was conceived to establish specifically delineated duty-free zones where export production could take place free from import and export hindrances. SEZs are deemed 1international territories for specified purposes.  In concurrence with the Indian Government policy of promoting SEZ/Export activities supply to SEZ is eligible for benefit of 2Zero rating in GST law.

SEZ units vs DTA units

Before we go deep into issues faced by suppliers while making a supply to SEZ unit let us first touch base on important concepts relating to SEZ.

3IGST Act read with  4SEZ Act defines SEZ (Special Economic Zone) means each Special Economic Zone “notified under the proviso to sub-section(4) of Section 3 and sub-section (1) of Section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zones.

5IGST Act  read with 6SEZ Act defines SEZ developer  means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer.

7As per SEZ Act, “Domestic Tariff Area(DTA) means the whole of India (including the territorial water and continental shelf) but does not include the areas of the Special Economic Zones.

In GST law, term DTA is not specifically defined and therefore to understand the meaning of said term one may refer to the definition of DTA provided in SEZ Act(supra). Broadly speaking for the purpose of implementation of SEZ policy businesses are classified into 2(two) broad categories. On one hand, there are SEZ Units/SEZ Developers and the rest all will fall within the bucket of DTA units.

Condition of Authorised Operations in GST law

To ensure the benefits of zero rating are not misused GST law has very strictly prescribed conditions of ‘Authorised Operations‘. Attention is invited to 8GST Rules which reads as under:

Application for refund shall be filed by the –

  • supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone
  • supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone

[Emphasis supplied by underlining]

Further as mandated by 9GST rules in a case where the refund is on account of supply of goods or services or both made to a SEZ or a SEZ developer  such refund application shall accompany evidence regarding the endorsement specified in the second proviso to sub-rule (1).

10GST Rules interalia stipulates that the invoice evidencing supply to SEZ/SEZ developer shall carry an endorsement Supply meant for Supply to SEZ unit or SEZ Developer for authorized operations on payment of Integrated Tax” or “Supply meant for Supply to SEZ unit or SEZ Developer for authorized operations under Bond or Letter of Undertaking without payment of Integrated Tax as the case may be.

11CBIC Circular  has also clarified that  DTA supplier supplying goods or services or both to SEZ/SEZ developer shall be eligible for refund of unutilized input tax credit or integrated tax paid, as the case may be only if such supplies have been received by the SEZ developer or SEZ unit for authorized operations. An endorsement to this effect shall have to be issued by the specified officer of the Zone.

It is pertinent to note that vide Finance Act 2021 12IGST act is amended by inserting phrase for authorised operations. Post this amendment benefit of zero rating is restricted to supply of goods or services or both to SEZ developer or SEZ unit only for authorized operations. It is however emphasized that this amendment is not yet notified and therefore not in operation as of now.

From the conjoint reading of the above GST provisions, it is clearly evident that the supplies of goods or services or both towards “authorised operations” only shall be eligible for the benefit of zero rating and endorsement from the specified officer of SEZ conclusively establish receipt of goods/services for authorised operations.

Conditions of Authorised Operations in SEZ Law

As per 13SEZ Act, “Authorised Operations” means operations which may be authorised under sub-section (2) of section 4 and sub-section (9) of section 15

To ensure SEZ privileges are not misused 14 SEZ Act provides that to be eligible to avail SEZ benefits SEZ units/Developer shall carry out only the authorized operations in the unit. Further 15SEZ Act  provides an exemption from GST levy in respect of goods or services or both brought from DTA unit to SEZ unit/developer, to carry on the authorised operations.

Accordingly SEZ unit or developer can undertake only those ‘Authorized operations’ which are specified in the Letter of Approval (LOA) issued by Development Commissioner of SEZ. Further said letter of approval is treated as very sacrosanct and therefore SEZ units are frequently required to make a request to amend their existing LOA to procure goods or services not included in their LOA. 16Development commissioner of SEZ is the sole authority to decide on the question as to whether any goods are required for authorized operation or not and GST authorities have no role to play in this matter. Further Ministry of Commerce & Industry, Department of Commerce (SEZ Section) has published a list of 66(Sixty Six) 17default authorized services. Such services if availed by SEZ units/Developer are considered as availed for authorised operations by default.

DTA supplier’s dilemma

DTA suppliers have to ensure that the supplies to be made to SEZ units/developers are part of the list of goods or services approved by the Development Commissioner for authorised operations [except for the default list of authorised services(supra)]. It is therefore advisable that DTA supplier obtains an amended LOA to ascertain the list of goods/services approved for authorized operations (apart from 66 default authorised services supra) before making any supplies to SEZ. This care is to be taken whether a supply is made with or without payment of tax. Goods and Services supplied for purposes other than authorised operations are subject to the normal GST rate as prescribed in the relevant notifications. Further, as per 18IGST Act such supplies would be treated as supply in the course of interstate trade or commerce and therefore IGST shall be leviable at the applicable rate.

Dichotomy between SEZ Rules and GST Rules

Though 19GST Rules (supra) provides for endorsement as an indispensable condition for claiming GST Refund there was no corresponding provision in SEZ Rules till 18th September 2018 authorizing SEZ authority for endorsement of Invoices. Resultantly DTA suppliers were caught between GST authority and the Specified SEZ authority. In many cases, refund applications could not be processed due to non-compliance with this basic condition.

SEZ Amendment Rules 2018

Vide SEZ Amendment Rules 2018 dated 19th September 2018 20SEZ Rules was amended to sync with GST law. Said Rule (as amended) lays down the procedures for procurements from the DTA. As the  said Rule is the cynosure of this write up let us browse through relevant rules in detail.

Amended 21Rule reads as under:

“The Domestic Tariff Area supplier supplying goods or services to a Unit or Developer shall clear the goods or services, as in the case of zero-rated supply as per provisions of Section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017) either under bond or legal undertaking or under any other refund procedure permitted under Goods and Services Tax laws or Central Excise law, or as duty or tax paid goods under claim of rebate, on the cover of documents laid down under the relevant Central Excise law for the purpose of export by a manufacturer or supplier”

It is also important to refer to other relevant  22SEZ Rule, extracted hereunder:

A copy of the document referred to in sub-rule (1) or copy of Bill of Export, as the case may be, with an endorsement by the 23authorised officer that goods have been admitted in full into the Special Economic Zone shall be treated as proof of export and a copy with such endorsement shall also be forwarded by the Unit or Developer to the Goods and Services Tax or Central Excise Officer having jurisdiction over the Domestic Tariff Area supplier within forty-five days failing which the Goods and Services Tax or Central Excise Officer, as the case may be, shall raise demand of tax or duty against the Domestic Tariff Area supplier”

It is pertinent to note post aforesaid amendment, SEZ Rules require every registered person supplying goods/services or both to SEZ units or Developer to obtain endorsement on Tax Invoice/ Bill of Export by the authorised officer. In absence of such SEZ endorsement, the GST authority can raise a demand on the supplier by treating it as a normal taxable Supply.

Practical issues in obtaining Endorsement

Trade and Industry have reported many practical challenges in getting the Invoices duly endorsed by the SEZ Officers. Some of these  challenges are highlighted as under:

  • Well-intended provision of endorsement was introduced to ensure SEZ benefits are not misused. Authorised officers of SEZ by way of endorsement certify that goods or services or both have been received by the SEZ unit for authorised operations. However, the process of endorsement has ultimately resulted in undesirable paperwork. In reality, said process is more of a document-based verification carried out post-completion of the transaction without any real-time verification/inspection as such. Experience suggests specified officers restrict their process to the inspection of original invoices, and scrutiny of vendor’s ledgers to ensure goods or services so procured have been paid in full.
  • Red Tapism and delay in the process are quite common as the entire process is offline and requires numerous visits by the DTA supplier and SEZ recipients.
  • Lack of uniform guidelines about documents to be submitted and processes to be followed.
  • Many authorised officers are refusing endorsement in case of goods received by way of courier mode.
  • In case DTA supplier has extended credit of more than 45 days then a chicken and egg situation arise. Specified officer many a times refuse to provide endorsement unless relevant invoices are paid in full and 24SEZ rules mandates GST authorities shall raise demand in case of non-receipt of endorsement within 45 days from the date of transaction.

Online Utility developed by SEZ Web portal

At the initiative of Department of Commerce, Ministry of Commerce & Industry 25SEZ web portal has been implemented to facilitate recording of all procurement Invoices of Goods/Services availed by SEZ Units/Developers from DTA Suppliers and to review, approve the same.

Presently following 2(two) modules are in operations viz

(a) DTA procurement form and

(b) DTA Service procurement form

DTA Procurement Form:

This module has been in operation for quite some time and deals with the online procedure to be followed by SEZ units and developers for submission of details of goods procured from DTA.

DTA Service Procurement Form (DSPF):

DSPF has been recently developed to address the issue of obtaining an endorsement from an authorized officer for services received by an SEZ unit or developer.  SEZ web portal has issued a notice dated 5th of September 2019 directing the deployment of the DSPF form, stating that details of all service procurements online through this form may be adopted as an obligatory process for service procurement beginning in October 2019.

Key Feature of DSPF Mechanism

As DSPF is a relatively new concept and not known to many It would not be out of place to discuss the finer points of the DSPF mechanism.

  • Multiple invoices issued by multiple/ different DTA suppliers during a month can be uploaded in a single go and submitted to Development Commissioner’s Office for review and endorsement.
  • Entire process of uploading DSPF, Approval/Endorsement by SEZ officers is online including the acknowledgment to DTA that the services provided by SEZ unit is approved. Such 26approval mail is sent to the registered mail ID of DTA service provider.
  • Excel template has been provided to fill in the necessary details and has to be attached with the DSPF form.
  • Post-approval details of approved service supplies made by DTA to SEZ unit/Developer are available online for 27public viewing
  • Following Important Mandatory details are captured in DSPF
    • Details of Invoices (Type/Date/Number/Amount)
    • Service Accounting Code(SAC) has to be selected from the dropdown menu and the service description will come automatically
    • DTA Supplier Email-ID is to be compulsorily provided. Approval confirmation shall be forwarded to this Email-ID only.
    • SEZ needs to indicate whether the supply in question is under bond/ Letter of Undertaking (LUT) or with payment of IGST
    • In case of without payment option – Bond/ LUT details need to be captured.
    • The approved list of services has to be selected from the dropdown menu.
    • If a particular service is specifically approved by UAC (Unit Approval Committee) as an approved service for exemption, the said service description can also be selected under the description as “Any other services as approved by DC offices”.

Puzzles unanswered

Certain disconnects are observed between the stated intention of the Government as it relates to Export Promotion and the manner in which they are implemented. Some of them are enumerated below for ease of understanding;

  • When the operation of SEZ law and GST law is fully online whether the requirement of physical endorsement from SEZ authorities on invoices/bill of export is desirable?
  • Whether Email received from SEZ web portal approving the procurement of goods and services for authorised operation is not sufficient for the purpose of 28GST Rules?
  • Whether E-invoicing concept should not be developed further to ensure online endorsement of E-Invoices by SEZ authorities. As of now, eligible vendors are issuing E-invoices to recipients whereas the SEZ authorities are putting endorsement on the physical print of such E-invoices!!!
  • Since Invoices and their endorsement process can be checked online by anyone including GST authorities whether 29 relevant GST Rules outlived its utility?
  • As of now endorsement process is more of clerical work and therefore should it not be replaced by self-certification by SEZ units with stiff penalties to deter its misuse?
  • GST law mandates the endorsement of Invoices by Specified officers (as defined supra) whereas practically Authorised officers (as defined supra) are endorsing such Invoices. In 6th year of GST implementation, whether such inconsistency should not be resolved?
  • Inconsistency between 30GST Rules and SEZ Rules provides ample space for litigation and is it fair to victimize DTA suppliers for such an unintended disconnect?

Way forward

In the personal view of the author endorsement process in respect of supplies made to SEZ units/developers demands complete rehauling as SEZ units are the growth engine of the economy. To achieve the dream of a 5 (Five) Trillion economy by FY 2025-26 industry requires freedom from unwanted paperwork and bottlenecks.  Till the time Inter linking of SEZ portal with GST portal attains reality thrust should be more on self-certification rather than mundane post-transaction certification.

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  1. Section 53 of the SEZ Act, 2005.
  2. As defined in Section 2(23) of the IGST Act.
  3. Section 2(19) of the IGST Act, 2017 as amended.
  4. Section 2(za) of SEZ Act, 2005.
  5. Section 2(20) of the IGST Act, 2017 as amended.
  6. Section 2(g) of the SEZ Act, 2005.
  7. Section 2(i) of SEZ Act,2005.
  8. 2nd Proviso to Rule 89 of CGST/respective State/UTGST Rules.
  9. Rule 89(2)(e) of CGST/respective State/UTGST Rules.
  10. Rule 46 of CGST/respective State/UTGST Rules.
  11. CBIC Circular No. 48/22/2018-GST dated 14th June 2018.
  12. Section 16(1)(b) of the IGST Act.
  13. Section 2(c) of SEZ Act,2005.
  14. Section 4(2) and Section 15(9) of the SEZ Act, 2005.
  15. Section 26 of SEZ Act 2005.
  16. MC&I (DC) Instruction No. 3; (F No. 5/1/2006-EPZ) dated 24-3-2006.
  17. Vide F.No. D.12/19/2013-SEZ dated 2nd January 2018.
  18. Section 7(5)(b) of the IGST Act.
  19. Rule 89 of CGST/respective State/UTGST Rules.
  20. Rule 30 of SEZ Rules.
  21. Rule 30(1) of SEZ Rules.
  22. Rule 30(4) of SEZ Rules as amended.
  23. In terms of Rule 2(c) of SEZ Rules,2006 Authorized Officer” means an Inspector or Preventive Officer or Appraiser or Superintendent of Customs posted in the Special Economic Zone and authorized by the Specified Officer to discharge any of his functions under these Rules.
  24. Rule 30(4) of SEZ Rules.
  26. Approval email is generally sent from email id
  28. Rule 89(2)(e) of the CGST/respective State/UTGST Rules.
  29. Rule 89(2)(e) of the CGST/respective State/UTGST Rules.
  30. Rule 89 of CGST Rules and Rule 30(4) of SEZ Rules.


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