- Legal Ambiguity: There is ongoing debate regarding whether Free Trading and Warehousing Zones (FTWZs) under the Special Economic Zones Act, 2005 can be classified as ‘bonded warehouses’ as per the Customs Act, 1962, affecting the applicability of Integrated Goods and Services Tax (IGST) on transactions within these zones.
- Divergent Rulings: Multiple Authorities for Advance Ruling (AAR) have issued conflicting decisions, with some concluding that transactions within FTWZs are subject to IGST, while others, including the AAAR, determined that they are exempt from IGST until cleared to the Domestic Tariff Area (DTA).
- Legal Framework: The IGST Act states that supplies made by or to an SEZ Unit attract IGST, but Schedule III of the CGST Act exempts certain transactions, such as those involving ‘warehoused goods’, raising questions about the classification of FTWZs.
- Proposed Amendments: In light of the conflicting rulings, the GST Council proposed retrospective amendments in December 2024 to clarify that transactions within FTWZs before clearance to the DTA shall be treated as exempt supplies, effective from July 1, 2017.
- Impact on Business: The proposed amendments aim to resolve legal uncertainties and enhance ease of doing business by providing clarity on the tax implications of standard trading practices within FTWZs, ensuring businesses can operate with greater certainty regarding IGST liabilities.
Source Lakshmisri
