sez/eou scheme – recent updates, challenges and …

©2019 Grant Thornton India LLP. All rights reserved.

SEZ/EOU Scheme – Recent updates, challenges and opportunities

1

November 2020


ContentsContents

Challenges and Issues3

GST Law - Recent updates and rulings2

FTP, Customs & SEZ – Recent updates and rulings1

2

Concept of Manufacturing Services4

Queries from Members5

©2019 Grant Thornton India LLP. All rights reserved.3

FTP, Customs & SEZ – Recent updates and rulings


FTP, Customs & SEZ – Recent updates and rulings (1/4)

44

Government invites data from exporters for RoDTEP scheme

• The Government has now formed a RoDTEP Committee. The committee has been tasked to determine the rates of refundfor items covered under the scheme. Information to be submitted in the form of R1/R2/R3.

• RoDTEP for SEZ – actual taxes (electricity duty + excise duty, VAT/CST paid on petroleum products) being incurred byunits needs to be appropriately refunded.

Extension of validity of Rebate of State and Central Taxes and Levies Scheme (RoSCTL)

• CBIC has notified that exemption pertaining to BCD and additional duty leviable under the Customs Tariff Act, 1975 upto31st March 2021 or unto such date the RoSCTL scheme is merged with the RoDTEP scheme, whichever is earlier.

• RoSCTL is applicable for goods falling under Chapter 61, 62 and 63 of the schedules of the All Industry Rates of Drawback.


IEC registration on newly revamped DGFT platform

• With an objective to provide paperless, digital, efficient and transparent services to the exporters and importers, and tofacilitate the overall goal of Trade facilitation and Digital India initiative, various revamped Directorate General of ForeignTrade (DGFT) services are being planned to be introduced in to the new DGFT IT platform. The platform would beaccessible through the existing website: https://dgft.gov.in.

Duty drawback or other benefits available for supplies from DTA to foreign suppliers in FTWZ:

• Amendment in Rule 24 of SEZ Rules w.e.f. 23rd October 2020, in case of supplies from Domestic Tariff Area (DTA) toforeign suppliers in Free Trade and Warehousing Zone (FTWZ), the drawback or any other similar benefit scheme shall beavailable where the payments are made in foreign currency by the foreign supplier to DTA



CBIC on approved allocation of Rs 39,097 crore for FY 2019-20 and Rs 15,555 crore for April-December 2020 for benefits under Merchandise Exports Incentive Scheme (MEIS).

Earlier, considering the limitation on fund allocation the online MEIS) module was blocked from 23rd July 2020 to limit the issuance of scrips.

Key changes notified for MEIS

Cap on total rewards under the Scheme - The total reward shall not exceed INR 2 crore per IEC for exports made during the period 1st September 2020 to 31st December 2020.

IEC holders who cannot submit any claim - An IEC who has not made any exports for a period of one year preceding 1st

September 2020 or New IECs obtained on or after 1st September 2020

MEIS to be discontinued - benefits under the MEIS shall not be available for exports made with effect from 1st January 2021

6


Government is looking to revamp SEIS to cover new beneficiaries and sectors


.

M/s Carlo Technical Plastics Pvt. Ltd. vs The Union of India Through The Director General of Foreign Trade, Ministryof Commerce, New Delhi; Dated: 21/10/2020 – Kerala High Court• M/s Carlo Technical Plastics Pvt. Ltd. (“The Petitioner”) is an EOU clearing goods to another EOU on payment of

applicable central excise duty and Central sales tax;

• Denial of refund of terminal excise duty paid using Cenvat credit by the Petitioner EOU on clearances made to another

EOU, on the ground that there is no provision under the FTP for refund of terminal excise duty when inter-unit transfer

amongst EOUs does not attract payment of duty;

• Held that: refund claim of the Petitioner cannot be rejected on the ground of absence of a provision of refund in the Foreign

Trade Policy - if inadvertently certain amount has been paid.



GST Law - Recent updates and rulings


GST Law - Recent updates and rulings (1/4)

9

Recovery of interest on net cash tax liability

NN. 63/2020 dt. 25th August 2020, has notified amendment made by Finance Act, 2019 for charging interest on net taxliability paid through electronic cash ledger, instead of gross liability in respect of supplies made during a tax period; anddeclared in GST return for said period furnished after the due date. Said amendment is effective from 01st September 2020.

For the period 1 July 2017 to 31 August 2020:The authorities have been instructed to recover interest only on net cashtax liability, in order to give retrospective relief to taxpayers.

9

Mandatory e - invoicing

NN. 88/2020 dt. 10th November 2020, provides for applicability of generation of e-invoice (B2B) w.e.f. 01st January 2021 fortaxpayers having aggregate turnover exceeding INR 100 crores in any preceding FY from FY 17-18 onwards.

Further, Special Economic Zones have been exempted from said requirement of generating e-invoices vide NN. 61/2020 dt.30th July 2020.


•GSTN launches new functionality in Form GSTR-2A including ITC on imports and SEZ supplies

Form GSTR-2A updated

•ITC statement in Form GSTR-2B notified vide NN 82/2020 dt 10th November 2020, w.e.f. 01st January 2021 (available on trial basis from July 2020 onwards)

Form GSTR-2B notified

•GST refund utility (Statement-3) updated online from 01st September 2020 to include value of FIRC/BRC

GST refund utility

•Delinking of credit note/debit note from invoice, while reporting them in Form GSTR 1/GSTR 6 or filing refund

Delinking of credit note/debit note

•Extension of due date of GSTR-1 to 11th of next month succeeding the relevant month (for monthly filers) and 13th of next month succeeding the relevant quarter (for quarterly filers) vide NN. 83/2020 dt 10th November 2020

Extension of due date of GSTR-1



.

Britannia Industries Ltd Vs UoI; 2020-TIOL-1495-HC-AHM-GST

• Petitioner, being a SEZ unit in Gujarat receives ITC in its electronic credit ledger through ISD route;

• Issue in this case was whether petitioner would be allowed refund of unutilized IGST credit lying in electronic credit ledger;

• Earlier claim was rejected on the ground that refund cannot be processed under any specified category of refund;

• The High Court rejected tax department’s contention that petitioner, not being a supplier, would not be entitled to file refund

application;

• Since ISD is distributing the credit on receipt of input services, it is not possible for a supplier of goods/services to file a

refund application in the present case, therefore, the stance of department that petitioner is not entitled to seek refund of

ITC paid in connection with goods or services supplied to SEZ unit is not tenable;

• Thus, the Gujarat HC allowed the petition for claim of refund of ITC distributed by ISD.



.

M/S Jian International vs Commissioner of Delhi Goods and Services Taxes (W.P. (C) 4205/2020).; Dated: 22/07/2020

• M/s Jian International (“The Petitioner”) filed application for refund for August 2019 on 4th November 2019;

• The respondent has to either point out discrepancy in refund application or accept such application within 15 days from

date of filing of refund application;

• In given case, respondent failed to process refund application, i.e. neither issued acknowledgment nor issued deficiency

memo within 15 days from date of filing of refund application.

• The Hon’ble Delhi High Court stated that the rules of refund policies and acknowledgement are clearly stated in the Act.

Therefore, there is no chance of leniency in abiding by rules.

• As refund application has not been processed within 15 days, then refund application should be assumed as completed in

all respect. Respondent has lost the right to point out any deficiency at this stage



Challenges and Issues


Challenges and Issues

1414

RCM liability on SEZs

• SEZ’s have been exempted from paying GST on import of goods/services;• GST under RCM - legal, director fee etc. are a matter of concern.• GST law does not provide any specific relaxation to SEZs - TRU has clarified that SEZ to furnish LUT under

GST law TRU from CBIC

Requirement of DTA sale in

foreign exchange

• Supply of services by SEZ units to DTA needs to be in foreign exchange;• Government to amend SEZ Act to allow sale of services by SEZ to DTA in local currency;• Though, FEMA provisions provide a DTA buyer to procure foreign currency to make payment to SEZ supplier

Description of service on LOP/LOI

• For IT enabled services, the description on LOP is mentioned as IT/ITes services and not the exact nature ofservice;

• Results into denial of SEIS benefit on eligible services;• Units while applying/renewal should specifically request for detailed/exact description on LOP/LOI


Concept of Manufacturing services


Concept of Manufacturing services (1/5)

1616

90%

10%

Global Manufacturing units

Manufacturing Service ProvidersActual Manufacturers

Buyers may themselves provide with the materials required formanufacturing or instruct the units to procure from the vendornominated by them or otherwise on reimbursement basis

Units obtain design andspecifications from thebuyers to manufacture thegoods as per theirspecifications

Units can be incentivizedwith SEIS Benefits which areWTO compliant

Manufacturing Service providers



1717

Overseas/Indian entity supplying imported input materials free of cost

Overseas/Indian entity supplying DTA input materials free of cost

Overseas/Indian entity instructing the units to procure imported input materials on reimbursement basis

Overseas/Indian entity instructing the units to procure DTA input materials on reimbursement basis

Common Transaction Models under Manufacturing Service Providers



1818

Section 8 Division 88 of Central Product Classification covers “Manufacturing services on physical inputs owned by others”

These services are categorized under division 88 as outsourced portions of a manufacturing process or a complete outsourced manufacturing process

The unit shall obtain Inputs from the buyer and carryout the manufacturing process as per their specifications and the output is not owned by the unit providing the service

The value of service under division 88 shall be based on the service fee paid and not the value of goods manufactured and SEIS shall be claimed on such value only

Note:1. Currently the SEIS incentive is computed on the basis of FOB value not on value addition.2. The groups, classes and subclasses under this division are aligned with the International Standard

Industrial Classification (ISLC) UN system.

Central Product Classification (CPC) for Manufacturing Service Providers



1919

Classes in which manufacturing services are being provided (aligned with ISIC Rev.4)

881: Food, beverage and Tobacco

Manufacturing services

882: Textile, wearing apparel and leather

manufacturing services883: Wood and paper

manufacturing services

884: Petroleum, chemical and pharmaceutical

products manufacturing services

885: Rubber, plastic and non-metallic mineral product


886: Basic metal manufacturing services

887: Fabricated metal product, machinery and

equipment manufacturing services

888: Transport equipment


889: Other manufacturing services – furniture, jewelry etc.,



2020

Procedure to avail SEIS as Manufacturing Service Provider

The Exporter onRecord (EOR) willbe manufacturingservice unit onaccount of therespectiveOverseas/ IndianEntity . The EORwill file the shippingbill

The consignee willbe declared as perthe instructions ofthe Overseas/Indian Entity

Transaction methodAccount invoices for materialprocurement fromoverseas/Indian entity onreimbursement or FOC basisIssues invoice formanufacturing servicerendered

Amend the IECcode to includeManufacturingservice as a part ofservice activity

The manufacturingservice value will beEligible for SEISupon realization offorex andgeneration of E-BRC


Queries from Members


Queries from Members (1/3)

2222

Mr. Aswathy Raj, Metadata Technologies

• Can a SEZ unit raise local invoices. If yes, what is the permissible limit? Supplies to DTA on local invoices, subject to achievement of positive NFE.

• Are SEZs required to collect GST on local invoices?Supply of goods routed like imports through bill of entry on payment of applicable custom duty (including IGST) while for

services, SEZ would charge IGST on invoice.• Are there any specified compliances in this regard, other than APR?

Additionally, Supply of services to be reported in GSTR-1 and GSTR-3B.• If unit (transferred from DTA to SEZ) qualifies conditions on date of commencement of production but haven’t claimed tax

holiday benefit for 1st FY, is the unit eligible to claim exemption in 2nd FY? An existing business transferred from DTA to sez does not qualify for section 10AA benefits for the life of the unit.

• If unit (transferred from DTA to SEZ) doesn’t qualify the conditions on date of commencement of production and haven’t claimedtax holiday benefit for 1st FY. Also the unit has qualified conditions on 01st April of next FY in SEZ, Is the unit eligible to claimexemption in the 2nd FY? If the conditions of Section 10AA are not satisfied in one year, then the claim of 10AA cannot subsist for future years.



2323

• Duty exemption on sending goods by Pharma SEZ to their CMO in DTA for research & development, where goods unlikely toreturn and CMO is not recognized laboratory. Any goods may be removed with prior approval of Authorized Officer (Rule 50(1)(e)); or For quality testing, research & development under intimation to Specified Officer and maintenance of records (Rule 50(2))

• Procedure for procuring goods for construction activity and return of surplus goods brought by building contractor; Rule 12 for application and approval as well as Rule 27(9) for return

• Procedure for destruction of goods of hazardous nature - If incinerators are recognized under Pollution control Board, is it notsufficient that their declaration of receipt and destruction of goods is sufficient compliance under SEZ provisions? Rule 39(2) specifying procedure of destruction of hazardous goods. No such relaxation is provided; however condition may

be relaxed by specified officer basis nature and activity of destruction and certificate of destroying agency.• Whether SEZ registered under the Factories Act is entitled for duty exemption on procuring kitchen equipment and consumables

for running subsidized canteen in the zone? Whether they are entitled for ITC on procurement of consumables like atta, rice etc.on payment of IGST as running of canteen is mandated for a factory? Since these goods are not linked with authorized operations, credit of GST paid appears to be questionable.

• If provisional assessment is ordered by SEZ authorities, then who is the authority for finalizing such provisional assessments –DC, SEZ or jurisdictional customs authorities or the SEZ authorities (AO/SO)? Assessment by Authorized Officers is limited to Bills of Entry and Shipping Bills filed by the units/developers/co-developers.

Authorized Officer means Inspectors/Preventive Officers/Appraisers/Superintendents of Customs for the time being postedin the SEZ.

Mr. Akella Prakasa Rao, Biocon Ltd



2424

Mr. Rahul Kalburgi, Aequs Pvt Ltd

• Can a SEZ invoice to other SEZ/EOU in INR? If yes, whether such invoicing will be considered for computation of NFE. Query appears to be for sale of goods, such invoicing in INR would not be considered for NFE.

• If goods purchased by SEZ unit from DTA supplier (under LUT) are rejected by SEZ unit, what will be the duty implication onreturn of such goods under two scenarios (a) replacement (b) no replacement. Also, specify documentation and reportingrequirement by SEZ unit in its GST returns. Rule 27(9) provides for replacement and return of goods to DTA, without payment of duty, subject to certain conditions.

Considering DTA would be filing bill of entry for such supplies, hence same would not be reported in GST returns of SEZ.• Can a SEZ invoice to DTA in foreign currency? If yes, whether such invoicing will be considered for computation of NFE. Query appears to be for sale of goods, such invoicing to DTA would not be considered for NFE.

• Whether SEZ unit is required to declare DTA sale of goods in its GST returns. Considering DTA would be filing bill of entry for such supplies, hence same would not be reported in GST returns of SEZ.

• Can a SEZ unit undertake job-work for DTA unit? Rule 43 provides the procedure for sub-contracting for DTA, subject to certain conditions and permissions.

• Whether E-way bill is mandatory for movement of goods from one SEZ unit to another SEZ unit within the same SEZ. There is no specific exemption to SEZs regarding e-way bill requirement.


Queries raised by MeMbers during

Webinar

2525

Name of member Query Response

Aparna Virkar How relevant (attractive) SEZ/EOU since govt. is promoting bonded warehouse, which has some really good benefits compared to SEZ/EOU?

All these schemes are independent of each other and with different objectives. To know which one is beneficial, a cost-benefit analysis is required to be done in light of business transactions.

Biswajit Sarkar

63053200, FIBC, is included under 63053200 but Rate allocated is 0%. In case it means Rebate/ Refund of Duty, then how it becomes 0%. Conceptually it seems wrong . We are afraid what will be amount of RODTEP. This is a highly prospective item for Exports from India. As per Ch. 7 , Only supply to be made by Manufacturer to EOU etc. for availing Deemed Export Drawback. In GST Regime suppliers also should be included.

RoDTEP is under consideration of Committee. The first portion of your question is not clear. Request you to resend the detailed query at [email protected]

SERUM INSTITUTE OF INDIA

substantial contribution in SEZ sector is made by IT sector by creating huge infrastructure involving large investments to accommodate such units. IT industry is seeking permanent WFH relaxation for IT / ITES Units. Then what would be the purpose of extending SEZ benefits to IT / ITES Units? In such cases, can IT / ITES SEZs sustain, as not much investments can be expected in this Sector.

It is important to mention that government is considering some major change or amendments in SEZ policy to make it more attractive.

OMPLSEZ Authorities insisting to pay Fees under Levy of fees (Customs Documents) for amendment, cancellation etc. for DTA Sale BOE in addition to SEZ Online fee. Whether such fees needs to be paid even after paying the SEZ online document charges?

Normally, prescribed charges are required to be paid after normal working hours of the officers.

mailto:[email protected]


Sachin Sharma

Bill of Export generated by SEZ unit does not contain EDF Number but manually endorsed by Custom officer of SEZ unit. Since the supply is in USD, same is not getting reflected in Bank's EDPMS portal. To whom the supplier should approach now to reflect all these BoE on Bank's portal so that related FIRCs can be utilized accordingly.

Request you to elaborate your query and share at [email protected]

Sowmya Sreeram Whether EOU Unit can pay another EOU unit for sub-contracting process in Foreign currency. This is on request by the job working EOU unit to claim it as deemed export

As per Para 6.14 of FTP, EOU can subcontract both production and production processeswithout any limit through otherEOU/EHTP/ STP/ BTP/ SEZ units, on the basis of recordsmaintained in unit. As per Chapter 7 of FTP, payment for supplies of deemed exports can be received either in INR or free foreign exchange.

Malla Phanindra Hi sir, I have a question here Is it requires E-Waybill? where the goods transported from the port, airport, air cargo complex, ICD and any customs stations to consignee

This case is not covered under exemptions from e-way bill provided under Rule 138 (14) of CGST Rules. Hence e-way bill would be required in the specified scenario.


Contact us

© 2020 Grant Thornton Bharat LLP. All rights reserved.“Grant Thornton in India” means Grant Thornton Bharat LLP, a member firm within Grant Thornton International Ltd, and those legal entities which are its related parties as defined by the Companies Act, 2013.Grant Thornton Bharat LLP, formerly Grant Thornton India LLP, is registered with limited liability with identity number AAA-7677 and has its registered office at L-41 Connaught Circus, New Delhi, 110001. References to Grant Thornton are to Grant Thornton International Ltd. or its member firms. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by the member firms.

Follow us @GrantThorntonIN

For more information or for any queries, write to us at [email protected]

NEW DELHINational OfficeOuter Circle, L 41 Connaught CircusNew Delhi 110001T +91 11 4278 7070

NEW DELHI6th floor, Worldmark 2, AerocityNew Delhi - 110037 T +91 11 4952 7400

AHMEDABAD7th Floor, Heritage Chambers, Nr. Azad Society, Nehru Nagar, Ahmedabad - 380015

BENGALURU5th Floor, 65/2, Block A, Bagmane Tridib, Bagmane Tech Park, C V Raman Nagar, Bengaluru – 560093T+91 80 4243 0700

CHANDIGARHB-406A, 4th Floor, L&T Elante Office Building, Industrial Area Phase IChandigarh 160002T +91 172 4338 000

CHENNAI7th Floor, Prestige Polygon471, Anna Salai, TeynampetChennai 600018T +91 44 4294 0000

DEHRADUN Suite no. 2211, 2nd floor Building 2000, Michigan Avenue Doon Express Business Park Subhash Nagar, Dehradun – 248002T +91 135 2646 500

GURGAON21st Floor, DLF SquareJacaranda Marg, DLF Phase IIGurgaon 122002T +91 124 462 8000

HYDERABAD7th Floor, Block III, White HouseKundan Bagh, BegumpetHyderabad 500016T +91 40 6630 8200

KOCHI6th Floor, Modayil Centre pointWarriam road junction, M.G.RoadKochi 682016T +91 484 406 4541

KOLKATA10C Hungerford Street5th FloorKolkata 700017T +91 33 4050 8000

MUMBAI16th Floor, Tower II, One International Center, SB Marg, Prabhadevi (W)Mumbai 400013T +91 22 6626 2600

MUMBAIKaledonia, 1st Floor, C Wing (Opposite J&J office)Sahar Road, Andheri East,Mumbai - 400 069

NOIDAPlot No. 19A, 7th FloorSector – 16ANoida 201301T +91 120 4855 900

PUNE3rd Floor, Unit No 309 to 312, West Wing, Nyati Unitree, Nagar Road, Yerwada Pune- 411006T +91 20 6744 8800