GST on Hotel Services Provided to SEZ Units in Karnataka
Hotel and restaurant services provided outside a Special Economic Zone are taxable as standard supplies, not zero-rated, even if billed to an SEZ unit.
- Ruling
- Advance Ruling No. KAR ADRG 02 / 2018 dated 21st March, 2018
- Dated
- 21 Mar 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
- Gogte Infrastructure asked if hotel services to SEZ guests qualify as zero-rated supplies.
- The Authority ruled these services are not supplies to an SEZ unit.
- Services provided outside the SEZ premises are treated as standard intra-state supplies.
- Billing an SEZ unit directly does not change the tax status of the service.
In short
The company asked the Karnataka Authority for Advance Ruling (AAR) if providing hotel and restaurant services to employees of a Special Economic Zone (SEZ) unit counts as a zero-rated supply. Under Goods and Services Tax (GST) law, zero-rated supplies are generally tax-free. The authority decided that because the hotel is located outside the SEZ, these services are not part of the SEZ's authorized operations and are therefore fully taxable.
What has changed
How it worked before
Businesses often assumed that if an SEZ unit requested and paid for hotel services, the transaction would qualify as a zero-rated supply to the SEZ.
What has changed
The authority clarified that location is the deciding factor. Since the hotel is outside the SEZ, the services are considered consumed at the hotel's location, making them standard intra-state supplies subject to regular GST rates.
Who this affects
Hotels, restaurants, and service providers located outside an SEZ that bill SEZ units for services provided to their employees or guests.
An example
Imagine a hotel in Bengaluru provides rooms to employees of an IT company located inside an SEZ. The hotel bills the IT company directly. Based on this ruling, the hotel must charge standard GST on the invoice rather than treating it as a zero-rated supply.
What you should do
If you provide similar services, you must charge standard GST. Remember that an Advance Ruling only binds the specific business that asked for it and their local tax office; it is not a universal law for all businesses.
If you do nothing
If you incorrectly treat these services as zero-rated, you will underpay your GST. During an audit, a tax officer may demand the unpaid tax plus interest and penalties. Relying on a ruling that does not apply to your specific situation can lead to significant financial liability.
The terms explained
- Zero-rated supplies
- Supplies of goods or services that are taxed at a zero percent rate, effectively making them tax-free for the recipient.
- Intra-state supply
- A transaction where the location of the supplier and the place of supply are in the same state, attracting both CGST and SGST.
- Special Economic Zone (SEZ)
- A specifically designated area with different trade and tax laws intended to encourage business and exports.
The ruling in detail
Authority for Advance Ruling
M/s GOGTE INFRASTRUCTURE DEVELOPMENT CORPORATION LIMITED
Advance Ruling No. KAR ADRG 02 / 2018 dated 21st March, 2018 · Karnataka
Questions before the authority
- Whether the Hotel Accommodation & Restaurant services provided by them, within the premises of the Hotel, to the employees & guests of SEZ units, be treated as supply of goods & services to SEZ units in Karnataka or not?
Facts
The applicant operates a hotel named Fairfield Marriott located outside of any Special Economic Zone (SEZ). They provide hotel accommodation and restaurant services to employees and guests of SEZ units, billing the SEZ units directly based on request letters. The applicant sought a ruling on whether these services qualify as supplies to SEZ units, which would potentially be treated as zero-rated supplies.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether services to employees/guests of SEZ units are supplies to SEZ units | No, they cannot be treated as supply of goods & services to SEZ units The services are considered intra-state supplies and are taxable |
The Authority ruled that the services provided by the applicant within the hotel premises to employees and guests of SEZ units cannot be treated as supplies to SEZ units. Consequently, these services are classified as intra-state supplies and are taxable accordingly.
Reasoning
The Authority reasoned that under Section 16(1)(b) of the IGST Act, 2017, only supplies towards authorized operations are treated as supplies to an SEZ unit. Since the hotel is located outside the SEZ, the services are neither part of authorized operations nor consumed inside the SEZ. Furthermore, the place of supply for hotel accommodation is the location of the hotel, and for restaurant services, it is where the services are performed. Therefore, the services are not 'imported or procured' into the SEZ and constitute **intra-state supply**.
Provisions relied on
- Section 16(1)(b) of the IGST Act, 2017
- Rule 46 of the CGST Rules, 2017
- Section 12(3)(b) of the IGST Act, 2017
- Section 12(4) of the IGST Act, 2017
For the practitioner
This ruling clarifies that hotel and restaurant services provided by a vendor located outside an SEZ to employees or guests of an SEZ unit do not qualify as **zero-rated supplies** to the SEZ. Practitioners should note that such transactions are treated as standard intra-state supplies subject to applicable GST. It confirms that the mere billing of an SEZ unit does not automatically confer the status of a supply to an SEZ unit.
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/02-gogte_infrasturcture-aar-order.pdf
Legibility of the scan, as read: high.
Prepared 16-10-2026.
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