GST On Beverage Sales To SEZ Units Without Certification
Supplying beverages to SEZ units is not zero-rated for GST unless certified as an authorized operation by the SEZ officer.
- Ruling
- Advance Ruling No. KAR ADRG 13 / 2018 dated 26th July, 2018
- Dated
- 26 Jul 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Company asked if beverage sales to SEZ units are zero-rated under GST.
- Karnataka AAR ruled beverage supplies are not automatically zero-rated.
- Zero-rated benefits require endorsement from an SEZ officer for authorized operations.
- Supplying drinks for employee consumption was not proven to be an authorized operation.
In short
Coffee Day Global Limited installed beverage vending machines inside Special Economic Zone (SEZ) premises to sell drinks to employees. The company argued that all goods and services supplied to an SEZ unit qualify as zero-rated under Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017. Tax authorities examined whether selling beverages for internal staff consumption qualifies for zero-rated status without explicit approval from an SEZ officer.
What has changed
How it worked before
Many businesses assumed that any goods or services physically delivered inside an SEZ area automatically qualified for zero-rated GST benefits.
What has changed
The Karnataka Authority for Advance Ruling (AAR) held in order KAR ADRG 13 / 2018 that physical delivery to an SEZ is not enough. A supply qualifies as zero-rated only if it is certified as an authorized operation by the specified officer of the SEZ under Rule 89 of the CGST Rules, 2017. Without this certification, suppliers cannot claim zero-rated status or input tax credit refunds on these sales.
Who this affects
Businesses that sell goods, drinks, food, or office services to units located inside Special Economic Zones.
An example
A catering vendor installs automated coffee machines inside a tech company operating in an SEZ zone. The vendor assumes it can bill the tech company with zero GST under Section 16 of the IGST Act, 2017. Based on the reasoning in order KAR ADRG 13 / 2018, tax authorities can reject zero-rating if the vendor lacks an endorsement from the SEZ officer confirming coffee sales are part of authorized operations. The vendor must then collect standard GST on the beverages.
What you should do
Before issuing invoices without GST, obtain a signed endorsement from the specified SEZ officer certifying that your goods are for authorized operations. Remember that an advance ruling binds only the business that applied for it and its local tax authority. Other suppliers must independently verify their tax position rather than treating this decision as automatic law.
If you do nothing
If you treat sales to SEZ units as zero-rated without official certification, tax officers can demand full back-taxes along with interest and penalties. You cannot rely on another business's advance ruling as a legal defense during an audit. Unbacked zero-rated claims often result in rejected refund applications and costly tax demands.
The terms explained
- zero rated supply
- A transaction on which no tax is payable and the seller remains eligible to claim a refund for GST paid on inputs.
- authorised operations
- Specific business activities and services officially approved by government authorities for an SEZ unit to carry out.
- input tax credit
- A tax balance that allows a business to reduce the GST it owes on sales by the amount of GST it already paid on purchases.
The ruling in detail
Authority for Advance Ruling
M/s Coffee Day Global Limited
Advance Ruling No. KAR ADRG 13 / 2018 dated 26th July, 2018 · Karnataka
Questions before the authority
- 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 ?
Facts
The applicant installs beverage vending machines inside SEZ premises to supply non-alcoholic beverages and ingredients for consumption by employees of SEZ units. The billing is executed either on a per-cup basis or based on the quantity of ingredients supplied to the SEZ units. The applicant contended that all supplies to SEZ units are zero-rated under Section 16 of the IGST Act, 2017, irrespective of whether they are used for authorised operations.
Ruling
| Question | What the authority ruled |
|---|---|
| Supply of non-alcoholic beverages and ingredients to SEZ units using vending machines | Does not qualify as zero-rated supply Supply was not certified as an authorised operation by the specified officer of the SEZ |
The Authority held that the supply of non-alcoholic beverages or beverage ingredients to SEZ units using coffee vending machines **does not qualify as zero-rated supply** under Section 16 of the IGST Act, 2017. Benefits accrue only when supplies are meant for **authorised operations** certified by the proper officer of the SEZ.
Reasoning
Section 16(1)(b) of the IGST Act, 2017 must be read in conjunction with Section 4(2) and Section 15(9) of the SEZ Act, 2005, which mandate that SEZ units can only undertake authorised operations. Rule 89 of the CGST Rules, 2017 reinforces this principle by requiring endorsement from the specified officer of the SEZ zone confirming receipt of goods or services for authorised operations. The litmus test for zero-rating is whether the supply is for authorised operations of the SEZ unit. Since the applicant failed to demonstrate that supplying beverages for employee consumption was certified as an authorised operation, the zero-rated benefit cannot be extended.
Provisions relied on
- Section 16 of IGST Act, 2017
- Section 16(1)(b) of IGST Act, 2017
- Section 2(19) of IGST Act, 2017
- Section 2(c) of SEZ Act, 2005
- Section 4(2) of SEZ Act, 2005
- Section 15(9) of SEZ Act, 2005
- Rule 89 of CGST Rules, 2017
For the practitioner
This order clarifies that supplies made to SEZ units are **not automatically zero-rated** merely by virtue of physical delivery into an SEZ area. To claim zero-rated status or refund of input tax credit, practitioners must ensure that the supply is certified as an authorised operation by the specified officer of the SEZ.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/krntk_13_2018_cdgl.pdf
Legibility of the scan, as read: high.
Prepared 21-10-2026.
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