SEZ Supply Without Payment of GST: Detailed Guide on Requirements, Documentation & Compliance

Learn how to supply to SEZ units without payment of GST under LUT. This article covers all requirements, documentation, procedures, and key compliance rules to help businesses and finance professionals stay GST-compliant.

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Introduction: What Makes SEZ Supply Without GST So Important?

Supplying to Special Economic Zones (SEZs) without the payment of GST is one of the most beneficial provisions under India’s Goods and Services Tax (GST) 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 to 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 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 filing
• Expert tips for smooth compliance

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What is a Zero-Rated Supply Under GST?

In GST terminology, zero-rated supply means a taxable supply that attracts 0% tax, but still allows the supplier to claim input tax credit (ITC).

Zero-rated supplies include:

• Export of goods or services
• Supply of goods or services to an SEZ unit or SEZ developer

This differs from exempt supply, where no tax is charged but ITC is not allowed.

Thus, zero-rating is a more beneficial route as it preserves your ITC eligibility.

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Legal Basis: Section 16 of IGST Act, 2017

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 per Section 16(3):

A registered person making zero-rated supply shall be eligible to supply under LUT without payment of IGST, subject to prescribed conditions.

 

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When Can You Supply to SEZ Without GST Payment?

To supply without payment of GST, all of the following must apply:

1. Supply must be to an SEZ unit or developer

Only SEZ registered units or developers are eligible recipients.

2. Supply must be for authorized operations

The SEZ unit must use the goods/services strictly for approved activities, as specified in their LOA (Letter of Approval) from the Development Commissioner.

3. Supplier must have a valid LUT

Without LUT, supply without tax is not permitted. If LUT is not filed, IGST must be charged and later claimed as refund.

4. Invoice must be endorsed by SEZ Specified Officer

This endorsement certifies that the goods/services were received for authorized operations and is crucial for refund eligibility.

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What is a Letter of Undertaking (LUT)?

An LUT is a declaration filed by a registered person under Rule 96A of CGST Rules, stating that they will fulfill all obligations for export/SEZ supplies without defaulting in tax payment.

Key facts:

• Filed online in Form GST RFD-11
• Valid for one financial year
• Requires no bank guarantee or bond
• Available to all GST-compliant businesses not prosecuted for tax evasion >₹2.5 crore

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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

Log into the GST portal, go to Services → User Services → Furnish LUT, and submit the form.

Step 2: Issue Proper Invoice

Include:

• SEZ GSTIN and unit name
• "Supply under LUT without payment of IGST" mentioned clearly
• HSN/SAC, value, and description of goods/services

Step 3: Transport Goods (If applicable)

Generate e-Way Bill and dispatch goods. Ensure timely delivery.

Step 4: Get Invoice Endorsed by SEZ Officer

The SEZ’s Specified Officer must endorse the invoice, confirming:

• Receipt of goods/services
• Usage for authorized 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 (Optional)

If your ITC is accumulating, file RFD-01 for a refund.

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Required Documents for SEZ Supply Without Payment of GST

Here’s a checklist of documents you must maintain:

1. LUT Copy

Proof that the supplier is authorized to make tax-free zero-rated supplies.

2. Tax Invoice

Clearly marked with “SEZ Supply under LUT without IGST”.

3. Transport Documents

Includes:

• E-way bill (if applicable)
• Delivery challans

4. SEZ Officer Endorsement

In case of goods, endorsement must confirm:

• Receipt of goods
• Use in authorized operations

For services, endorsement of the invoice or confirmation letter from the SEZ unit suffices.

5. Refund Application Documents

• RFD-01 Form
• Statement 3 (invoice details)
• SEZ endorsements
• ITC Ledger
• Declaration of no prosecution

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Refund Claim on SEZ Supplies Without IGST

If you supply without IGST and claim refund of unutilized ITC, follow these steps:

Eligibility:

• Refund is only for input tax credit (CGST, SGST, IGST) accumulated.

Filing Timeline:

• File within 2 years from the end of relevant month.

Filing Process:

• Go to GST portal → Refunds → Application for Refund → Select “SEZ Supply Without Tax”
• Upload Statement 3, endorsement copies, and supporting invoices

Processing Time:

• Refund is generally processed within 30–60 days if documents are in order.

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Key Compliance Tips for SEZ Supply Under LUT

To ensure your supplies are compliant and refund-safe:

1. File LUT at the beginning of FY

Renew your LUT every year. File before making any zero-rated supply.

2. Use proper invoice language

Add the phrase “Supply to SEZ under LUT without payment of IGST” prominently.

3. Ensure SEZ officer’s endorsement

Without endorsement, the invoice will not be treated as zero-rated.

4. Keep all documents intact

In case of scrutiny or audit, detailed documentation supports your claim.

5. File returns on time

Ensure timely GSTR-1 and GSTR-3B filing with correct entries.

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Common Errors to Avoid

Here are some frequent mistakes businesses make:

1. Supplying without LUT

This invalidates zero-rating and attracts tax liability.

2. Not obtaining SEZ endorsement

Without this, the supply cannot be proved as authorized.

3. Delayed return or refund filing

Can lead to rejection of refund claims.

4. Incorrect classification in returns

Reporting in wrong table (e.g., under B2B instead of SEZ) leads to mismatch.

5. Not maintaining service proof

For service suppliers, ensure you retain email acceptance, contract copies, and SEZ utilization letters.

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Real-World Example: SEZ Supply Without GST – Service Sector

XYZ Software Pvt. Ltd., a registered GST supplier based in Bangalore, provides software development services to ABC SEZ Unit in Hyderabad.

• It files LUT in April 2025
• Issues invoice for ₹10,00,000 without charging IGST
• ABC SEZ endorses the invoice for authorized use
• XYZ reports in GSTR-1 (Table 6A) and GSTR-3B
• It files refund claim in RFD-01 for accumulated ITC of ₹1,20,000
• Refund is processed in 45 days

Key Learning: Proper documentation and return compliance ensure smooth refund processing.

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FAQ: SEZ Supply Without GST Payment

Q1. Can a composition dealer supply to SEZ under LUT?

No. Composition dealers cannot make zero-rated or export supplies.

Q2. Can we raise a single invoice for both SEZ and non-SEZ supply?

No. Separate invoices must be issued for SEZ and domestic supplies.

Q3. Is endorsement required for service supplies too?

Yes, but it can be in the form of a confirmation letter/email from the SEZ unit acknowledging receipt for authorized operations.

Q4. Can I file refund if SEZ supply is delayed?

Refund can be filed within 2 years from the relevant date, subject to documentary evidence of supply.

Q5. What happens if LUT is not renewed?

You must pay IGST on SEZ supply. Non-renewal invalidates the zero-rated status.

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Conclusion: Why This Matters for CMAs and Businesses

SEZ supplies without payment of GST, when executed correctly, offer cash flow efficiency, tax savings, and global competitiveness. However, non-compliance can lead to reversals, penalties, and refund rejection.

As a CMA, accountant, or finance professional, understanding the fine details of zero-rated compliance is essential. From LUT filing to documentation and timely return filing, every step counts.

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