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February 24, 2026

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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 and later claim a refund or Supply without payment of IGST, under a valid letter of undertaking LUT and claim a refund of unutilized ITC.

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

‍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