E-invoicing has been made mandatory from 1st October 2020 and companies have already started generating their e-invoices. The government has been releasing several notifications and circulars regarding various aspects of it in order to offer clarifications of topics such as E-invoicing and RCM, E-invoicing and E-way Bill, E-invoicing and B2C and so on. Now, to discuss E-invoicing and SEZ, let us get into the basics and then understand the present scenario.
24th Feb 2022: As per CGST Notification 01/2022 released on 24th Feb 2022, GST e-invoice has been made mandatory for entities with turnover of Rs. 20 Cr and above. Exclusion of SEZ units (but not SEZ developers) and certain classes of taxpayers such as banks & financial institutions, GTA, etc. shall continue.
What is SEZ – Special Economic Zone?
Special Economic Zone or SEZ are dedicated geographical regions present in a country, providing businesses with simpler tax and legal compliance. In a manner of saying, SEZ can be considered as a Trade Capacity Development tool, which has been established to boost the economic growth of the nation.
The Special Economic Zones are deemed as foreign territory for trading operations and taxation purposes, i.e. any goods or services supplied to the SEZ unit/developer are treated as Zero-Rated supply and attract 0% GST. Conversely, any supply made from the SEZ shall be treated as a normal supply and normal GST rates, as applicable, may apply on such transactions.
E-invoicing and SEZ Units/Developers
1. Supplies made by a SEZ unit/developer as a Supplier
According to the GST Notification (Central Tax) 61/2020 dated 30-7-2020 only SEZ Units are exempted from issuing e-invoices for their outward supplies. For SEZ Developers e-invoicing is applicable if they have specified turnover and fulfilling other conditions for e-invoicing mandate.
Example: If there is a SEZ unit, a SEZ developer and a regular DTA (Domestic Tariff Area) unit under the same legal entity i.e. having same PAN and the aggregate total turnover of the legal entity i.e. PAN is more than Rs. 500 Crores (considering all three GSTINs). In this scenario, the SEZ unit is exempt from e-invoicing, but e-invoicing will be applicable to DTA Unit as well as SEZ developer because the aggregate turnover of the legal entity, in this case, is more than Rs. 500 Crores. Thus, the eligibility is calculated on total annual turnover in case of a common PAN.
If you are a recipient of supplies from SEZ units/developers, then you need to ensure that your internal systems and supplier masters identify SEZ Units and SEZ Developers as separate types. This is because only then you will be able to understand whether IRN should be present on invoice received or not. Use IRIS Peridot for identifying whether your vendor is an SEZ unit or an SEZ developer.
2. Supplies made to SEZ unit/developer:
If your GSTIN fall under the e-invoicing mandate then all supplies to registered persons (B2B), Supplies to SEZs (with or without payment), Exports (with or without payment), and Deemed Exports are covered under the mandate. Thus for a regular taxpayer supplier, even supplies made to SEZ units or developers will have an IRN and QR code generated.
Points to Note for Supplies to an SEZ Unit/developer while generating IRN
1. Type of Transaction
The type of transaction is to be reported as SEZWP (SEZ with payment) or SEZWOP (SEZ without payment). It is important to get the customer master updated so that proper transaction type is added while IRN generation. This is also important as the same will be auto-populated in GSTR1 as well.
2. Place of Supply
Supplies to SEZ Unit/Developer are always treated as Interstate transactions, even if the supplier location is same as the place of supply. There is a field called “IGST on Intra” in e-invoicing schema which allows charging IGST despite of the transaction being an interstate transaction. However, this field is not applicable to supplies made to SEZ and Export invoices. This is because the SEZ and export transactions are by default Interstate transactions defined in GST Act.
Impact of e-invoicing on GST Refund Applications in case of Supplies to SEZ
For supplies made to SEZ unit/developer, the suppliers can claim GST refund through refund application for both with payment as well as without payment. So now for such GST refunds also the e-invoicing mandate will become very important. If you are eligible for e-invoicing then you will not be able to claim refund unless IRN is generated.
Currently GSTR1 is planned to be auto-populated based on e-invoices and the same is still in development phase.
Thus, there is also a possibility that now that as IRN is being generated the GST refund process could also be automated.
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