Charging IGST Instead of CGST+SGST on Zero-Rated Supplies Supplying special economic zones SEZs without the payment of GST is one of the most beneficial provisions under India’s goods and services tax regime. This method allows suppliers to avoid cash blockage, maintain competitive pricing, and stay compliant with zero-rated supply norms. Under section 16 of the IGST Act, supplies made on SEZs are considered zero-rated, giving suppliers the choice to:
Supply with payment of IGST
This article will focus on the second route, SEZ supply without payment of tax and will explain in detail:
Legal framework
Eligibility
Required documents
Step-by-step process
Common errors
Refund filling
Expert tips for smooth compliance
What is a Zero-Rated Supply Under GST? In GST terminology, zero-rated supply means a taxable supply that attracts 0% tax, but allows the supplier to claim input tax credit.
Zero-rated Supplies Include:
Export of Goods or Services
Supply of goods or services to an SEZ developer
The difference from exempt supply, where no tax is charged, buyt ITC is not allowed.
The zero rating is a more beneficial route as it preserves your ITC eligibility.
According to Section 16 (1) (B) of the IGST Act: Supply of goods or services or both to a special economic zone developer or a special economic zone unit shall be treated as zero rated supply.
And Pert Section 16(3): A registered person making zero rated supply shall supply under LUT without payment of UGST, Subject to prescribed conditions.
When Can You Supply to SEZ Without GST Payment? To supply without payment GST, all of the following must apply:
Supply must be to an SEZ unit or Developer : Only SEZ-registered units or developers are eligible recipients.
Supply must be for authorised operation : The SEZ initi must use the goods/ services strictly for approved activities, as specified in their LOA from the development commissioner.
Supplier must have a valid LUT : Without LUT, the supply without tax is not permitted. If LUT is not filed, IGST must be charged and later claimed as a refund.
The invoice must be endorsed by SEZ specified Officer : This endorsement certifies that the goods/services were received for authorised operations and is crucial for refund eligibility.
What is a Letter Undertaking? An LUT is a declaration filed by a registered person under rule 96 A of the CGST rules, that they will fulfil all obligations for export SEZ supplies without defaulting in tax payment.
Key Facts:
Filed online from GST RED-11
Valid for one fiscal year
Requires no bank guarantee or bond
Available to all GST-compliant businesses not prosectes for tax evasion 2.5 crore
SEZ Supply Process Without GST: Step by Step Here is the complete workflow to supply to an SEZ unit without paying GST.
Step:1 File LUT for the Current FY
Log in to the GST portal, go to services, user services. Furnish the LUT and submit the format
Step2: Issue proper Invoice
Include:
SEZ GSTIN and unit name
Supply under LUT without payment of IGST is mentioned clearly
HSN/SAC, value and description of goods/services
Step 3: Transport Goods
Generate e-way bill and dispatch goods, ensure timely delivery
Step 4: Get the invoice endorsed by the SEZ Officer
The SEZ’s specified officer must endorse the invoice, confirming:
Receipt of goods/services
Usage for authorised operations
Step 5: Report in GSTR-1 and GSTR-3B
GSTR -1 report: In table 6A - Export and sez supplies
GSTR-3B: Report in 3.1(b) – Zero-rated supply without tax
Step 6: File Refund of Unutilized ITC
If your ITC is accumulating file RFD-01 for a refund
Required Documents for SEZ Supply Without Payment of GST LUT Copy
Proof that the supplier is authorised to make tax-free zero-rated supplies:
Tax Invoice:
Clearly marked with SEZ supply under LUT without IGST
Trasport Documents
Include:
E-way bill
Delivery challan
SEZ officers Endorsment
In case of goods, endorsement must confirm:
Receipt of goods
Use in authorised operation
For services endorsement of the invoice or confirmation letter, the SEZ unit suffices
Refund Application Documents RFD-01 Form
Statement 3 (invoice details)
SEZ endorsements
ITC Ledger
Declaration of no prosecution
Suggested Read: Location of Supply in the GST Framework
Refund Claim on SEZ Supplies without IGST If you supply without IGST and claim a refund of unutilized ITC, follow these steps:
Eligibility: Refund is only for the input tax credit CGST, SGST, and IGST accumulated
Filling Timeline: File within 2 years from then endof relevant month
Filling Process: Go to the GST portal, refund, and application for supply with tax
Upload statement 3, endorsement copies, and supporting invoices
Processing Time: Refund is generally processed within 30-60 days if documents are in order.
Key Compliance Tips for SEZ Supply Under LUT To ensure your supplies are compliant and refund safe:
File LUT at the beginning of FY
Renew your LUT every year, with a compliant and zero-rate supply
Use Proper Invoice Language
Add the phrase supply to SEZ under LUT without payment of IGST prominently.
Ensure SEZ officer’s Intact
In case of security or audit details, documentation supports your claim
File Return on Time
Ensure timely GSTR1 and GSTR 3B filing with correct entries.
Common Errors To Avoid Here are some frequent mistakes businesses make:
Supplying without LUT
This invalidated zero-rating and attracts tax liability
Not Obtaining SEZ Endorsement
Without this, the supply cannot be proved as authorised.
Delayed Return or Refund Filing
Can lead to rejection of refund claims.
Incorrect Classification in Returns
Reporting in the wrong table under B2B instead of SEZ leads to a mismatch.
Conclusion SEZ supplies without playing of GST, when executed correctly, offer cash flow efficiency, tax savings, and global competitiveness. However, non-compliance can lead to revelations.
As a CMA, accountant or finance professional, understanding the fine details of zero-rated compliance is essential. From LUT filling to documentation and timely return filing, every step counts.
Suggested Read: Metal Mountings GST Rates & HSN Code 8302
FAQS SEZ supply without GST paymet? No composition dealer can make zero-rate export supplies.
Can we raise a single invoices for both SEZ and non sez supply? No. Separate invoices must be issued for SEZ and domestic supplies.
Is endorsement required for services supplies too? Yes, but it can be in the form of a confirmation email form the SEZ unit acknowledging receipt for authorized operations.
Can I file refund if SEZ supply in delayed? Refund can be files within 2 years from the relevant date, subject to documentary evidence of supply.
What happens if LUT is not renewed? You must pay IGST on SEZ supply. Non-renewal invalidates the zero-rated status.
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