ITC refund on SEZ supplies requires SEZ officer endorsement, LUT or IGST payment route, and refund filing within two years — FY 2026-27 procedure explained.
Supplies to a Special Economic Zone or to an SEZ developer are zero-rated under section 16 of the IGST Act, allowing the supplier to claim refund of unutilised input tax credit or pay IGST and claim a refund. The pivotal procedural condition is endorsement by the authorised SEZ officer confirming receipt of goods or services for authorised operations. For FY 2026-27, this approval continues to be the single biggest cause of refund delays for SEZ suppliers.
Why SEZ Approval Matters for ITC and Refund
Without the SEZ officer's endorsement, the supply does not qualify as zero-rated under section 16(1)(b) of the IGST Act. The supplier's GSTR-1 reflects the transaction as a regular taxable supply, the ITC chain breaks, and the refund claim under Rule 89(2)(f) of the CGST Rules cannot be processed. Field officers verify the endorsement against the SEZ Online portal entry before sanctioning refunds.
Modes of SEZ Supply
- Supply with payment of IGST, with the supplier claiming refund of the tax paid.
- Supply without payment of IGST under a Letter of Undertaking, with the supplier claiming refund of accumulated input tax credit.
- Receipt of services from SEZ to DTA, where SEZ unit pays IGST and claims refund.
Approval Workflow
- Supplier issues tax invoice with SEZ details and ships goods or delivers service.
- Goods enter SEZ through approved gate; specified officer endorses Bill of Export or invoice.
- Service receipt acknowledged by SEZ unit through SEZ Online or in writing.
- Endorsed copy retained by supplier as evidence for refund.
- Refund application filed in Form RFD-01 with endorsed documents within two years from relevant date.
Required Documents for Refund
- Tax invoice and shipping documents with SEZ destination clearly marked.
- Endorsed Bill of Export for goods or endorsed invoice copy for services.
- LUT acknowledgement where supply is without payment of IGST.
- Statement of invoices in the prescribed Annexure-1 / Annexure-B.
- Bank realisation certificate where applicable.
- Self-declaration by SEZ unit confirming authorised operations linkage.
Common Refund Rejection Reasons
Field officers most often reject SEZ refund claims because the endorsement is missing or unsigned, the supply has not been received for authorised operations, the invoice amount does not match the endorsed document, the SEZ unit's letter of authorisation has lapsed, or the bank realisation does not match the invoice value for export-equivalent claims. Tight document hygiene prevents reopening.
Time Limit and Provisional Refund
Refund application must be filed within two years from the relevant date — generally the date of receipt of payment for services or the date of shipment for goods. Provisional refund of 90% under Rule 91 is available for zero-rated supplies, subject to the proper officer's satisfaction. The balance is released after detailed scrutiny within the prescribed time limits.
Conclusion
SEZ supplies offer genuine zero-rating but only with watertight documentation. Make the SEZ endorsement a non-negotiable step in your fulfilment workflow, file refunds within two years, and respond promptly to scrutiny notices to keep the working capital flowing through FY 2026-27.
