Supply of Non-Alcoholic beverages to SEZ units will not be considered as zero-rated supply: AAR
Facts: M/s Coffee Day Global Limited is engaged in supply of non – alcoholic beverages to SEZ unit using coffee vending machines and undertakes following two types of transactions:
- Installs beverage vending machines inside SEZ premises, prepares beverages using the vending machines & its ingredients which are consumed by the employees of SEZ units – Charge the SEZ units based on number of cups of beverages supplied;
- Installs beverage vending machines inside SEZ premises, supplies beverage ingredients to the SEZ units and bills based on the quantity of ingredients supplied. SEZ units prepare the beverages using the vending machines and serve them to its employees. There will not be any consideration for the usage of vending machine by the SEZ units.
The applicants’ contention is that any supply of goods or services to SEZ units is zero-rated and interprets that the phrase ‘any supply’ would cover everything, including beverages and ingredients for beverages. Therefore, the supplies to the SEZ units are in the nature of zero-rated supplies notwithstanding that they are not used for authorized operations.
Issue Involved: Whether supply of non-alcoholic beverages to SEZ units using coffee vending machines is in the nature of zero-rated supply as defined under Section 16 of the IGST Act, 2017?
Ruling: – The Hon’ble AAR, Karnataka vide Advance Ruling No. KAR/ADRG 13/2018 dated July 26, 2018, held that supply of non-alcoholic beverages/ ingredients to such beverages, to SEZ units using coffee vending machines do not qualify as zero-rated supply as defined under Section 16 of the IGST Act, 2017 in view of the following:
- Any special benefit accruing to the Units located in the SEZ shall be strictly in respect of the authorised operations only;
- The applicant has used the term ‘any supply’. We find that this term is not used anywhere in the statute. The word ‘any’ has been used only once in Section 16(1) of IGST Act, 2017. It reads ‘(1) “zero-rated supply” means any of the following supplies of goods or services or both, namely:- …’. This sentence is followed by two options (a) and (b) and there is an ‘or’ between them. The word ‘any’ refers to either (a) or (b);
- Had the word ‘any’ been placed at the beginning of the sentence in (b) to read ‘any supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone Unit’ then the contention of the applicant would have been worth consideration;
- Rule 89 of the CGST Rules, 2017 related to refund stipulates that the supply, in respect of which tax had been paid and refund is sought, shall be necessarily for authorized operations. In other words the sine qua non or indispensible element is that the supply has to be certified by the proper officer as constituting authorized operations.
- Therefore even in the event of the IGST Act, 2017, not explicitly using the term ‘authorised operations’ in Section 16(1)(b) of the IGST Act, 2017, it is implicit that the supply of goods or services or both described in Section 16(1)(b) have to be read as in relation to authorized operations.
Citation : [2018] 96 taxmann.com 247 (AAR-KARNATAKA)