Sale of Hotel Room to SEZ in GST

Sale of Hotel Room to SEZ in GST

This is a controversial provision of the law, section 7(5)(b) provide for the nature of supply in cases where SEZ unit or SEZ developer are involved.

Section 7(5) of IGST Act:-

“Supply of goods or services or both,– 

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit;” 

where section 12(3)(b) provides for a place of supply in case of Hotel accommodation. As per the provisions of the section, the place of supply for boarding or lodging or accommodation in hotel, inn, guest house, homestay, club or campsite will be the location of the immovable property.

Section 12(3) of IGST Act:-

“The place of supply of services,–

(b) by way of lodging accommodation by a hotel, inn, guest house, homestay, club or campsite, by whatever name called, and including a houseboat or any other vessel; or”

By virtue of this provision a hotel, inn, guest house, homestay, club or campsite are required to charge CGST and SGST, irrespective of the location of the recipient. 

On the other hand, all supplies to SEZ  are liable to IGST. Now the question arises that, if the hotel accommodation is provided to an SEZ unit or SEZ developer, then what should be the levy? CGST and SGST OR IGST?

Section 7 of IGST Act, provides for the inter-state supply for the GST. In simple words, it says that nature of supply is dependent on place of supply if the place of supply is located in the different state from the location of supplier then the nature of supply will be the interstate. And if both locations of supplier and location of the supplier are in one state then the nature of the supply is the intrastate.

It is imperative to understand that the nature of the supply where SEZ unit OR SEZ developer is involved then the specific provision of section 7(5)(b) will be applicable. This provision does not make nature of supply subject to the place of supply, thus while deciding the nature of supply make to or from the SEZ unit or developer, the place of supply is irrelevant. 

The same stand is taken by CBIC via Notification No. 26/2018-Central tax. In this notification, CBIC has also observed that all supplies to or by SEZ unit or SEZ developer are irrespective of place of supply.