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February 17, 2025

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GST Rules

How to Claim GST Refund on Supplies to SEZ Unit or Developer Without Tax Payment

Chasing GST refunds for supplies to SEZs creates an intricate process that challenges businesses. Organizations offering goods and services to SEZ units and developers must understand tax benefits for their zero-rated supplies to succeed. A business can improve its financial standing and operating funds through correct tax compliance and asking for Input Tax Credit refunds. This guide makes the GST refund process easier by explaining who can apply, how to execute it step by step, which documents are needed, what new rules apply, and what mistakes to stay away from.

Understanding Zero-Rated Supplies Under GST

As per Section 16 of the IGST Act, 2017, zero-rated supplies encompass:

1. Exports of goods and services

2. Supplies made to SEZ units or developers

Unlike exempt supplies, which do not allow the claiming of ITC, zero-rated supplies permit businesses to recover the ITC used in making these supplies. This mechanism prevents working capital from being blocked, allowing businesses to maintain financial fluidity.

Modes of Supplying to SEZ

There are two primary methods for supplying goods and services to SEZ entities:

1. With payment of IGST – The supplier pays IGST on supplies and later claims a refund.

2. Without payment of IGST – The supplier furnishes a Letter of Undertaking (LUT) and claims a refund of unutilized ITC.

This guide focuses on the second method: supplying goods and services without tax payment.

Who Qualifies as an SEZ Unit or Developer?

Special Economic Zones (SEZ) are designated areas in India with tax and economic advantages to support export growth and attract foreign investment. Businesses that operate in SEZ locations receive special advantages which help make them major global trading hubs for export.

Entities that qualify as SEZ units or developers include:

1. Companies registered under the SEZ Act, 2005

2. Businesses engaged in IT services, manufacturing, exports, and similar industries

3. Developers responsible for maintaining SEZ infrastructure

Eligibility Criteria for Claiming GST Refund

To successfully claim a GST refund for supplies made to SEZ units without tax payment, businesses must meet the following conditions:

1. Valid LUT: Filed before making supplies

2. Recipient must be an SEZ unit or SEZ developer

3. Goods/services must be used for authorized SEZ operations

4. The invoice must mention: “Supply under LUT without tax payment”

5. Supporting documents, such as SEZ endorsements, invoices, and payment proofs

Important: If the SEZ unit does not use the supplied goods/services for authorized operations, the refund claim may be rejected.

Step-by-Step Process to Claim GST Refund

Step 1: File LUT (Letter of Undertaking) on the GST Portal

1. Log in to the GST Portal.

2. Navigate to Services > User Services > Furnish LUT.

3. Enter the required details and submit using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

4. Save the acknowledgement receipt for reference.

Pro Tip: The LUT remains valid for one financial year and must be renewed annually before making zero-rated supplies.

Step 2: Gather Required Documents

Ensure that the following documents are in place before filing a refund claim. Some Mandatory Documents are:

1. GST RFD-01 (Refund Application Form)

2. Statement 5A (Invoice details for SEZ supplies)

3. Tax Invoices issued to SEZ units

4. SEZ endorsement (Proof of goods/services received)

5. Bank payment receipts for service supplies

6. Copy of LUT filed for the relevant financial year

7. Electronic Credit Ledger showing unutilized ITC

Tip: Digitally sign and double-check documents for errors to prevent rejection.

Step 3: Filing the GST Refund Application

Steps to Apply for a GST Refund:

1. Log in to the GST portal.

2. Navigate to Services > Refunds > Application for Refund.

3. Select “Refund on account of supplies made to SEZ without payment of tax”.

4. Upload supporting documents, including invoices and SEZ endorsements.

5. Submit the application using DSC/EVC.

6. Note the Acknowledgment Reference Number (ARN) to track the claim status.

Processing Time: Refund claims are generally processed within 60 days. If delayed, interest at 6% per annum is payable by the tax department.

Track Refund Status: Visit Services > Refunds > Track Application Status on the GST portal.

GST Refund Calculation Formula

As per Rule 89(4) of CGST Rules, the refund amount is calculated as follows:

Refund Amount: (Turnover of zero-rated supply × Net ITC) ÷ Adjusted Total Turnover

1. Turnover of zero-rated supply: Value of supplies made to SEZ

2. Net ITC: ITC on inputs and input services (excluding capital goods)

3. Adjusted Total Turnover: Total business turnover in India during the refund period

Conclusion

A GST refund process for SEZ supplies protects business cash flow and keeps companies within tax regulations. Companies that use an organized refund process and keep proper records make their claim procedures easier to manage and reduce the chance of problems. The process becomes easier and improves both business finances and efficiency. A proper tax refund plan lets SEZ businesses grow with no interruptions to their tax requirements.