Earlier this year, the Prime Minister made a very significant announcement on reducing compliances for industry and moving towards self-certification. There is no denying that policy makers intend to make compliance easy and effective; however, the harsh reality on the ground is that these ideas rarely attain fruition. A classic example of the chasm between the intention and reality is the endorsement process for invoices by suppliers of goods or services to SEZs, to be able to claim either GST exemption or refund.
The DTA Service Procurement Form (DSPF) was introduced to streamline the process but has met with limited success since the practices followed across SEZ offices are not consistent and multiple visits to the SEZ office are still warranted in most locations. The peculiarity of this procedure is that the person claiming the refund or exemption is dependent on his customer for getting the endorsement, and there is involvement of two authorities – SEZ and GST departments. Extraordinary delays in getting endorsements from both authorities is causing unnecessary hardship to SEZ suppliers.
The culprit in this case is the second proviso to Rule 89 of the CGST Rules, which provides that refund may be applied for by a:
(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
(b) supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone.
The avowed purpose of this endorsement is that the tax benefit is not misused and that the goods and services are used by the SEZ unit, which means that by way of the endorsement, the officers are certifying that the goods and services are received by the SEZ unit. All the endorsements are expected to be based on documents furnished and there is no physical inspection carried out by the officers. That being the case, it begs the question as to how an authorised officer is in a better position than the SEZ unit to certify that the goods have been received and used for authorised operations. In the case of services supplied to an SEZ unit, the situation is even worse, where it is even more of a challenge to provide ‘evidence’ of receipt of services for endorsement by the officer. In both cases, be it supply of goods or services, the gold standard for verification of receipt would be whether the goods or services have been paid for and any officer can do little beyond that. This can well be done by a self-certification process by the SEZ unit.
It can be argued that there is government revenue at stake which warrants the procedure of endorsement. However, input tax credit equally qualifies as government revenue and in a non-SEZ situation, the acceptance of invoice by the buyer of goods or services, and payment therefor is considered adequate protection of the same. That being the case, it is difficult to understand why the same process cannot be extended to SEZ supplies as well. With the detailed reporting in the monthly GST return as regards B2B supplies, and more so, now with e-invoicing in place, this procedure is now redundant and must be scrapped.
About the author: The author is Chief Catalyst and Partner, Tax and Technology, Consark Advisory Services LLP. Consark is a boutique advisory services firm providing Financial, Risk & Assurance and Tax advisory services. The author can be contacted on firstname.lastname@example.org. (Views expressed in this article are personal.)