Case: Carnation Hotels (P.) Ltd., In re  110 taxmann.com 196 (AAR – KARNATAKA)
The applicant is proposing to operate hotels and rent out rooms to the employees of the SEZ units. The services rendered by the hotels are entirely consumed at the premises itself.
Query 1: Whether accommodation service proposed to be rendered by the applicant to SEZ units are liable to CGST and SGST or IGST?
Query 2: If the accommodation service to SEZ are covered under IGST Act, can these be treated as zero rated supplies and the invoice be raised without charging Tax after executing LUT under section 16?
Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit are treated as Zero Rated Supply in terms of Section 16(l)(b) of IGST Act, 2017. Further Rule 46 of CGST Rules 2017 stipulates that the invoice shall carry an endorsement “Supply meant for export/Supply to SEZ unit or SEZ Developer for authorised operations on payment of Integrated Tax or Supply meant for Export/ Supply to SEZ unit or SEZ Developer for authorised operations under Bond or letter of Undertaking without payment of Integrated Tax as the case may be.
Query 1: Central Government issued Circular No.48/22/2018-GST dated 14/06/2018 in which it is clarified that services of short-term accommodation, conferencing, banqueting, etc. provided to a SEZ developer or a SEZ Unit shall be treated as an inter-State supply. The circular laid down the rationale on the established principle of interpretation of statutes that in case of an apparent conflict between two provisions, the specific provision shall prevail over the general provision. Therefore, section 7(5)(b) of the IGST Act being a specific provision relating to supplies of goods or services or both made to a SEZ developer or a SEZ Unit overrides general principle laid down in Section 12(3)(c) of IGST Act, 2017 and therefore such supplies shall be treated as inter-State Supplies.
Query 2: Circular No.48/22/2018-GST dated 14/06/2018 clarified that on a conjoint reading of Section 16(1), 16(3) of IGST Act, 2017 and second proviso to rule 89(1) of CGST Rules, 2017, it is revealed that supplies to a SEZ developer or a SEZ unit shall be zero rated and the supplier shall be eligible for refund of unutilized input tax credit or integrated tax paid, as the case may be, only if such supplies have been received by the SEZ developer or SEZ unit for authorized operations. An endorsement to this effect shall have to be issued by the specified officer of Zone. Therefore, subject to provisions of section 17(5) of the CGST Act, if event management services, hotel, accommodation services, consumables etc. are received by a SEZ developer or a SEZ unit for authorised operations, as endorsed by the specified officer of the Zone, benefit of zero rated supply shall be available in such cases to the supplier.
Query 1: The accommodation service proposed to be rendered by the applicant to SEZ units are covered under the IGST as it is an inter-State supply as Per section 7(5)(b) of the Integrated Goods and Services Act, 2017.
Query2: Since the accommodation service supplied to an SEZ are covered under IGST Act, the same can be treated as zero rated supplies and the invoice can be raised without charging Tax after executing LUT under section 16.
The issue is now settled after a long round of battle. Also in the matter of Mrs. Poppy Dorothy Noel,  110 taxmann.com 231 (AAR – KARNATAKA), it was held that supply of accommodation services to the SEZ Units is an inter-State supply under clause (b) of sub-section (5) of section 7 of the Integrated Goods and Services Tax Act, 2017 and if it is for authorized operations, then it is covered under “zero-rated supplies” under section 16(1) of the Integrated Goods and Services Tax Act, 2017. But if it is for non-authorised operations, then it would be not covered under “zero-rated supplies” under section 16(1) of the Integrated Goods and Services Tax Act, 2017 and hence liable to tax at 18% IGST with the place of supply being the provision of such services.
However, clarity and issue of circular by Government was not before decision of AAR which came in the matter of Gogte Infrastructure Development Corporation Ltd.,  93 taxmann.com 201 (AAR-KARNATAKA) wherein it was held that Hotel Accommodation & Restaurant services being provided by the Applicant, within the premises of the Hotel, to the employees & guests of SEZ units, cannot be treated as supply of goods & services to SEZ units in Karnataka & hence the intra-state supply and are taxable accordingly.