The Letter of Approval (LOA) — Foundation of SEZ Identity
What Is the Letter of Approval?
The Letter of Approval (LOA) is the primary approval issued by the Development Commissioner of the SEZ to an SEZ unit or SEZ developer under the SEZ Act, 2005. It is the foundational document that legally establishes an entity as a valid SEZ participant.
The LOA authorizes several critical aspects of the SEZ unit's existence and operations:
- 👉Establishment of the SEZ unit at the specified location.
- 👉Nature of permissible business activities.
- 👉Scope of approved operations within the zone.
- 👉Permitted procurement of goods, services, and imports.
While the LOA confirms that an entity is a legally recognized SEZ unit or developer, it does not by itself establish that a specific supply qualifies for zero-rating. GST officers in assessments and refund proceedings routinely insist on additional documentation beyond the LOA.
The practical position accepted by GST authorities is:
- 👉LOA confirms SEZ status— the entity is a valid SEZ unit/developer.
- 👉Annexures confirm eligibility— the particular goods/services are approved for authorized operations.
The Approved List — Defining the Scope of Zero-Rating
After the LOA is issued, the SEZ authorities separately approve a detailed list of goods, services, capital goods, consumables, and input services that the SEZ unit is permitted to procure for its authorized operations. These approvals are generally issued as annexures or approved procurement lists appended to or associated with the LOA.
What the Approved List Typically Covers
- ✅Goods — raw materials, semi-finished goods, components. ✅Capital goods — machinery, equipment, infrastructure items.
✅Consumables — materials consumed in the production process.
- ✅Input services — services required for manufacturing or operational activities.
- ✅IT/software services used in authorized operations.
Why the Approved List Is the Key to Zero-Rating
Under GST law, zero-rated treatment for SEZ supplies is available only when the goods or services are used for authorized operations. The approved list is the instrument that defines what "authorized operations" means for that specific SEZ unit.
During audits or refund verification proceedings, authorities compare the supplier's invoice description with the approved annexure list. If the supplied item does not appear in the approved list, authorities may deny zero-rated treatment — regardless of whether the recipient is an SEZ unit.
DPF & DSPF — The Procurement Authorization Forms
Supplies from the Domestic Tariff Area (DTA) — i.e., mainland India outside the SEZ — into the SEZ are processed through the SEZ online system using two specific procurement forms. These forms serve as the transaction-level approval for each individual procurement.
Used for procurement of goods from DTA suppliers into the SEZ. Tracks and authorizes the inward movement of physical goods into SEZ premises.
- ➡Supplier details & GSTIN
- ➡Invoice details & description of goods
- ➡Quantity and value
- ➡Purpose / use within SEZ ➡Approval references from authorized operations
Used for procurement of services by SEZ units from DTA service providers. Authorizes specific services for authorized operations.
- ➡Service description and category
- ➡Vendor / service provider details ➡Service period and value
➡Purpose linking service to authorized operations
➡Approval references
A DPF/DSPF without corresponding inclusion in the approved annexure list is a red flag. Both need to align — the annexure establishes category eligibility, the DPF/DSPF establishes transaction-level authorization.
The SEZ Online Procurement Workflow
Most SEZs now process DTA procurements through the centralized SEZ Online portal. Understanding this workflow is essential for DTA suppliers because it determines when they should raise invoices, what approvals must precede supply, and when the endorsed invoice is generated.
SEZ Unit Raises DPF / DSPF
The SEZ unit initiates a procurement request on the SEZ Online portal, generating a DPF (for goods) or DSPF (for services).
Internal Approval by SEZ Unit
The procurement request is reviewed and internally approved by the relevant department or authorised signatory within the SEZ unit.
Submission to Specified Officer
The approved DPF/DSPF is forwarded to the Specified Officer of the SEZ Development Authority for regulatory approval.
Approval / Endorsement by Specified Officer
The Specified Officer reviews and endorses the procurement — confirming that the goods/services are for authorized operations and within permitted scope.
DTA Supplier Raises Invoice and Supplies Goods/Services
Only after endorsement should the DTA supplier raise the tax invoice and dispatch goods or commence service delivery.
Endorsed Invoice Generated
Post-delivery, the invoice is endorsed by the Specified Officer — confirming actual receipt of goods/services in the SEZ for authorized operations. This is the critical document for GST refund claims.
The Specified Officer Endorsement — The Keystone Document
Of all the documents in the SEZ procurement chain, the Specified Officer Endorsement is arguably the most critical from a GST perspective. The Specified Officer is an officer authorized under SEZ law to supervise and certify SEZ operations.
The endorsement formally confirms two things that GST law requires for zero-rating:
- ✅Goods or services wereactually receivedinside the SEZ premises.
- ✅The supplies arefor authorized operationsas defined in the LOA and approved annexures.
Under GST refund procedures, the endorsed invoice acts as primary evidence that zero-rated supply conditions are fulfilled. Without endorsement, refund claims may be rejected outright, and zero-rating benefit may be disputed during assessment proceedings.
Pre-Supply Document Verification Checklist
A DTA supplier must never rely on verbal assurances from the SEZ customer. Before raising an invoice and making a supply, the following documents must be obtained and verified:
A. Mandatory Basic Documents
| Document | Purpose | Status |
|---|---|---|
| GST Registration Certificate | Verify SEZ status on GSTN portal | Mandatory |
| Letter of Approval (LOA) | Confirm the entity is a valid SEZ unit/developer | Mandatory |
| Approved Annexure / Approved List | Verify that specific goods/services are included in authorized operations | Mandatory |
| DPF / DSPF | Transaction-level procurement authorization from SEZ Online | Mandatory |
| Purchase Order | Commercial documentation aligning with DPF/DSPF | Important |
| LUT Copy | Letter of Undertaking if supply is made without charging IGST | If applicable |
B. Supply-Type Specific Checks
- ✅Goods appear in the approved annexure
✅DPF is approved on SEZ Online
✅SEZ GSTIN is valid (check GSTN portal)
✅Place of delivery is the SEZ premises
✅LUT is valid if supply is without IGST
- ✅Service appears in approved service list
- ✅DSPF is approved on SEZ Online
- ✅Service relates to authorized operations
- ✅Service agreement supports SEZ usage
- ✅Service location aligns with SEZ premises
What If Goods/Services Are NOT in the Approved Annexure?
This is one of the most critical practical issues in SEZ-related GST compliance. The scenario arises more often than expected — when a DTA supplier receives a purchase order from an SEZ unit for goods or services that are not explicitly covered in the approved annexure, DPF/DSPF, or authorized operations approval.
If the supplied goods or services are not covered in the approved annexure, DPF/DSPF, or authorized operations approval, the supply may lose its zero-rated status. In such cases, the supplier should treat the supply as a normal taxable supply — but the applicable tax is still IGST, not CGST+SGST.
Tax Treatment — Which Tax Applies to SEZ Supplies?
The Foundational Rule — SEZ Supplies Are Always Inter-State
Under Section 7(5)(b) of the IGST Act, supply to or by an SEZ unit or SEZ developer is expressly treated as an inter-state supply, regardless of whether the supplier and the SEZ are located in the same state.
Decision Matrix
| Scenario | Tax Treatment | GSTR-1 Table | GSTR-3B Table |
|---|---|---|---|
| Supply approved for authorized operations + proper documentation | Zero-rated (LUT or IGST refund route) | Table 6B | Table 3.1(b) |
| Supply NOT approved / documentation incomplete | Normal IGST Taxable Supply | Table 4 (B2B) | Table 3.1(a) |
Because SEZ supplies are specifically deemed inter-state under the IGST Act, CGST and SGST are generally not applicable — even if the zero-rated benefit is denied. Even in a denied zero-rating scenario, the supplier must charge IGST (not CGST+SGST) and the customer can avail ITC of IGST.
GST Return Reporting — GSTR-1 & GSTR-3B
Incorrect reporting in GST returns is one of the most frequent causes of refund rejection, GST notices, and mismatch proceedings in SEZ transactions. The reporting tables depend entirely on whether the supply qualifies as zero-rated or must be treated as normal taxable.
Conditions for Scenario B (Normal Taxable Reporting)
- ❌Supplied goods/services are not included in the approved annexure.
- ❌DPF/DSPF approval is absent or not obtained.
- ❌Specified Officer endorsement is unavailable.
- ❌Supply is not linked to authorized operations of the SEZ unit.
Post-Supply Documents to Maintain
The documentary trail must continue after the supply is completed. The following documents are essential for GST audits, refund claims, and departmental proceedings.
- ✅Tax Invoice— Primary GST document
- ✅E-Way Bill— Movement proof for goods above threshold
- ✅LR / Transport Proof— Delivery evidence from carrier
- ✅Endorsed Invoice— Specified Officer endorsement (most critical)
- ✅Gate Entry Acknowledgment— Physical entry into SEZ premises
- ✅Approved DPF— Authorized procurement reference
- ✅Tax Invoice— GST compliance document
- ✅DSPF Approval— Service authorization from SEZ Online
- ✅Service Agreement / Work Order— Nature and scope of service
- ✅Service Completion Report— Delivery proof from SEZ unit
- ✅Endorsed Invoice— Specified Officer confirmation of service receipt
Common Refund Risk Areas Scrutinised by GST Officers
Based on practical experience in GST assessments and refund proceedings involving SEZ suppliers, the following are the most frequently raised scrutiny points:
Suggested Internal SOP for SEZ Supplies
Suppliers handling SEZ transactions regularly should implement a formal Standard Operating Procedure (SOP) to ensure that no step in the documentation chain is missed.
Suppliers should never act on verbal confirmation from SEZ customers that a supply is "approved" or "zero-rated." Always obtain the physical documents — LOA, approved annexure, DPF/DSPF approval, and endorsed invoice. These protect the supplier in GST audits, refund proceedings, and departmental investigations.
Conclusion
Documentation Is the Foundation
Supplies to SEZ units and developers are legally inter-state supplies under Section 7(5)(b) of the IGST Act and therefore attract IGST. When supplies are made for authorized operations and supported by complete documentation, the transaction qualifies as zero-rated — one of the most beneficial GST treatments available.
However, the central practical takeaway is unambiguous:
LOA alone is not sufficient.
Suppliers must additionally verify the approved annexure, the DPF/DSPF approval, and obtain the Specified Officer endorsement. Where goods or services fall outside the approved authorized operations:
- ➡The supplier should chargeIGSTat applicable rates (not CGST+SGST).
- ➡Report the transaction inGSTR-1 Table 4as taxable B2B supply.
- ➡Report it inGSTR-3B Table 3.1(a)as a normal outward taxable supply.
Only supplies genuinely qualifying for authorized operations — backed by the full documentation chain — should be reported in GSTR-1 Table 6B and GSTR-3B Table 3.1(b) as zero-rated SEZ supplies.
In SEZ transactions, documentation is the foundation of GST compliance. Proper verification before supply and proper endorsement after delivery are the twin pillars that safeguard zero-rating benefits and prevent costly litigation.
No comments:
Post a Comment