Approval from SEZ officer for ITC

Approval from SEZ Officer for ITC: Complete Refund Procedure for FY 2026-27

Supplies to a Special Economic Zone (SEZ) unit or developer are zero-rated under Section 16 of the IGST Act, 2017. To claim either an IGST refund or a refund of accumulated input tax credit (ITC), you must obtain an endorsement from the authorised SEZ officer confirming the goods or services were received for authorised operations. Without this endorsement, the GST portal treats your supply as an ordinary taxable transaction and the refund filed in Form RFD-01 will not be processed. For FY 2026-27, here is exactly how the whole procedure works — from the first invoice to the final credit in your bank account.

Why Zero-Rating Hinges on the SEZ Officer's Endorsement

The Legal Trigger: Section 16 of the IGST Act

Section 16(1) of the IGST Act, 2017 defines two categories of zero-rated supply:

• Export of goods or services outside India — Section 16(1)(a)
• Supply of goods or services to an SEZ unit or SEZ developer — Section 16(1)(b)

Zero-rating is categorically different from exemption. An exempt supply breaks the ITC chain; a zero-rated supply preserves it completely. You can recover every rupee of GST paid on inputs, input services, and capital goods used in producing that zero-rated supply — either by claiming a refund of accumulated ITC or by charging IGST and claiming that tax back.

The legal condition that unlocks this benefit is spelled out in Section 16(3) read with Rule 89 of the CGST Rules, 2017: the supplier must furnish prescribed documentary evidence showing the supply was actually received and consumed for authorised operations within the SEZ. This evidence is the SEZ officer's endorsement. No endorsement means no zero-rating, regardless of how correctly you have filed your GSTR-1.

What "Authorised Operations" Actually Means in Practice

An SEZ unit does not get a blanket zero-rating on every purchase it makes. The Development Commissioner of the relevant SEZ approves a specific list of authorised operations — the manufacturing, trading, or service activities the unit is established to carry out. Goods or services that fall outside this list are treated as domestic tariff area (DTA) supplies and attract normal GST.

When the SEZ officer endorses your invoice or Bill of Export, they certify that the specific consignment or service is covered by those approved operations. A delivery of canteen supplies, construction of staff quarters, or unrelated trading goods will not be endorsed. Understanding this before you raise the invoice avoids the disappointment of a completed delivery that generates no refund entitlement.

Two Routes to Zero-Rating — and How to Choose

Route 1: Supply Under LUT Without IGST (Rule 89 ITC Refund)

Under Section 16(3)(a) of the IGST Act, you can supply to an SEZ unit without charging IGST at all, provided you have a valid Letter of Undertaking (LUT) in force. The LUT is filed online on the GST portal under Rule 96A of the CGST Rules, typically before the first zero-rated supply of each financial year. For FY 2026-27, your LUT must be filed before or on the date of your first SEZ invoice for that year.

With a valid LUT in place, your invoice shows zero IGST. You accumulate ITC on your inputs normally and then apply for a refund of the unutilised ITC under Rule 89(2)(f) by filing Form RFD-01.

When this route works best: When your input tax load is regular and predictable, when you make recurring supplies to the same SEZ unit, and when your cash position can absorb a short refund wait.

Route 2: Pay IGST and Claim Full Refund (Rule 96)

Under Section 16(3)(b), you charge IGST at the applicable rate on the supply, pay it to the government through GSTR-3B, and then apply for a full refund of the IGST paid under Rule 96 of the CGST Rules.

When this route works best: For one-off or infrequent SEZ supplies where you have not filed an LUT, or when your input credit is negligible and you want a clean, direct refund of the exact tax paid rather than a formula-based ITC refund.

Critical rule: You cannot apply both routes to the same category of supply within a financial year. Choose one, apply it consistently across all GSTR-1 filings for those supplies, and document the decision. Mid-year switches require reversals that invariably attract a scrutiny notice.

The SEZ Officer Endorsement: Exactly How It Works

For Goods: The Bill of Export on SEZ Online

When you dispatch physical goods to an SEZ unit, the endorsement sequence is:

1. Raise a tax invoice showing the SEZ unit's GSTIN (if registered), full address, and the words "Supply to SEZ — Zero Rated". If you are using the LUT route, also write "Supply Without Payment of IGST" and quote your LUT reference number on the face of the invoice.
2. The transporter presents the goods at the designated SEZ gate with the invoice and packing list.
3. The SEZ unit or its Customs House Agent (CHA) files a Bill of Export (BoE) on the SEZ Online portal (managed by NSDL; accessible at sezonline-ndml.com), citing your invoice number, date, and value.
4. The authorised SEZ officer — an officer of the Development Commissioner's office — examines the goods, verifies them against the authorised operations list, and endorses the BoE on SEZ Online with the confirmation: "Received for authorised operations."
5. You obtain the endorsed BoE — either downloaded from SEZ Online via the SEZ unit's credentials, or as a certified printout — and retain it as your primary refund evidence.

The gap that causes the most delays: Many suppliers consider their job done once goods leave the factory. The endorsed BoE is the SEZ unit's document. A busy operations or logistics team at the SEZ unit can delay sending it to you by weeks. Build into your SOPs a follow-up step: within 48 hours of confirmed delivery, your accounts team requests the endorsed BoE reference number. Do not allow a two-year refund window to erode because of an unanswered WhatsApp message.

For Services: Invoice Endorsement and Written Acknowledgment

Services have no physical gate entry, so the process differs:

1. Issue your service invoice to the SEZ unit, identifying the service type and — wherever possible — referencing the SEZ unit's authorised operations approval number.
2. The SEZ unit's authorised signatory, or the Development Commissioner's officer if the SEZ requires it, issues a written endorsement confirming: "Services received by [name], GSTIN [XX], for authorised operations as per approval dated [date]."
3. Different SEZs have different internal practices. SEEPZ in Mumbai, NOIDA SEZ, and Kandla SEZ each have their own endorsement forms. Confirm the specific format your Development Commissioner's office requires before you raise the first invoice.
4. For services delivered remotely (cloud infrastructure, professional advisory, SaaS), CBIC circulars have accepted a self-declaration by the SEZ unit confirming receipt and use for authorised operations. Field officers, however, are increasingly insisting on a formal portal entry even for services. Where the SEZ Online portal allows a service entry, ask your SEZ customer to complete it — it removes ambiguity at the time of refund scrutiny.

Step-by-Step: Filing the Refund Claim in Form RFD-01

Pre-Filing Checklist

Tick every box before opening Form RFD-01:

• [ ] GSTR-1 for all relevant tax periods filed correctly, with the SEZ supply appearing as inter-state zero-rated supply under the SEZ unit's state as Place of Supply
• [ ] GSTR-3B for those periods filed and ITC taken therein
• [ ] LUT for FY 2026-27 active — check the acknowledgment under Services → User Services → Furnish Letter of Undertaking on the GST portal
• [ ] Endorsed BoE (goods) or written service endorsement in hand
• [ ] Bank account linked to your GSTIN is correct and active for the refund credit
• [ ] Invoice-wise statement reconciled against GSTR-1 data — every number must match exactly

Navigating the GST Portal

1. Log in to the GST portal (www.gst.gov.in).
2. Navigate to Services → Refunds → Application for Refund → Create Refund Application.
3. Select the correct refund type. For the LUT route: "Refund of ITC on account of supplies made to SEZ unit/developer without payment of tax." For the IGST payment route: "Refund of IGST paid on supplies made to SEZ unit/developer." Selecting the wrong category is one of the commonest triggers for a deficiency memo.
4. Choose the relevant tax period. The portal allows both quarterly and annual claims — quarterly claims keep your refund cycle shorter and reduce working capital lock-up.
5. The portal auto-populates ITC from GSTR-3B and turnover from GSTR-1. Verify both figures line up with your workings before proceeding.
6. Upload the prescribed invoice-level statement under Rule 89(2) (labelled Statement 4 in the RFD-01 annexure for SEZ supplies) — listing invoice number, date, value, tax amount, and the corresponding BoE or endorsement reference.
7. Upload the endorsed BoE or service endorsement, LUT acknowledgment, and any self-declaration required.
8. Submit and note the Application Reference Number (ARN) for all future correspondence.

Provisional Refund Under Rule 91

Once filed and acknowledged by the proper officer (acknowledgment in Form RFD-02 is due within 15 days), 90% of the claimed amount is sanctioned provisionally under Rule 91 within 7 days of the acknowledgment date. The remaining 10% is released after full scrutiny within the prescribed time under Rule 92. For a refund claim of Rs. 25 lakhs, the provisional release of Rs. 22.5 lakhs within three weeks of filing materially reduces your working capital drag. File complete, correct applications — not perfect ones — to trigger the provisional release quickly.

Worked Example: IT Components Supplier to a SEEPZ SEZ Unit

Facts for the illustration:

• Supplier: Precision Tech Pvt. Ltd., Mumbai (DTA)
• SEZ Buyer: Nano Systems Ltd., SEEPZ SEZ, Mumbai
• Supply: Semiconductor components used in Nano Systems' authorised electronics manufacturing
• Tax period: Q3, FY 2026-27 (October – December 2026)
• Four invoices totalling: Rs. 80,00,000 (exclusive of tax)
• Applicable GST rate: 12% IGST
• Route chosen: LUT route — LUT filed on 1 April 2026 for FY 2026-27

ITC accumulated to fulfil this supply:

Refund calculation under Rule 89(4):

> Refund = (Turnover of zero-rated supply ÷ Adjusted total turnover) × Net ITC

Assume total adjusted turnover for Q3 FY 2026-27 = Rs. 2,00,00,000 (comprising Rs. 80,00,000 SEZ supply + Rs. 1,20,00,000 taxable DTA sales).

> Refund = (80,00,000 ÷ 2,00,00,000) × 6,28,000 = Rs. 2,51,200

What gets credited and when:

• Provisional refund (90%) under Rule 91: Rs. 2,26,080 — within 7 days of acknowledgment
• Balance (10%) under Rule 92: Rs. 25,120 — after scrutiny

The cost of missing the two-year deadline: The four BoEs were endorsed in October–December 2026. The two-year window expires in October–December 2028. If Precision Tech's accounts team misses even one deadline and files a claim for a December 2026 invoice on 1 January 2029, that portion of the Rs. 2,51,200 lapses with no statutory mechanism for extension or condonation. It is not carried forward; it is simply lost.

Calculating Your Two-Year Refund Window Correctly

The refund application must be filed within two years from the relevant date under Section 54(1) of the CGST Act, 2017. For SEZ supplies, the relevant date is generally:

• For goods: The date on which the SEZ officer endorses the Bill of Export — i.e., the date of confirmed receipt within the SEZ for authorised operations.
• For services: The date of receipt of payment by the supplier, or the date of issue of invoice, whichever is earlier.

The practical risk for goods suppliers is this: if your SEZ unit takes 60 days to file and get its BoE endorsed (not unusual where operations teams are stretched), your two-year clock starts 60 days after the invoice date. But if you are calculating your filing deadline from the invoice date, you are giving yourself false comfort — you may already be running late against the real deadline.

Build a rolling tracker with three columns: Invoice Date, BoE Endorsement Date, Refund Filing Deadline. Review it monthly. For any invoice approaching the 18-month mark from endorsement date without a filed refund claim, escalate internally. The finance team should not be receiving this as a surprise in month 23.

Common Mistakes That Get SEZ Refunds Rejected

Document-Level Errors

• Endorsement filed but not formally approved: The SEZ Online portal shows two distinct statuses — "Filed" and "Endorsed." A BoE that is filed but pending officer approval is not an endorsed BoE. Confirm the portal status shows "Endorsed" before including the document in your RFD-01.
• Incorrect authorised operations reference: A generic "received for SEZ use" declaration without tying back to a specific authorised operation on the unit's approval letter has been rejected at the field level. Insist that the SEZ unit's endorsement identifies the operation by name or approval reference.
• Invoice value mismatch with BoE: If your invoice shows Rs. 50,00,000 and the SEZ unit files the BoE for Rs. 49,90,000 after deducting a handling charge, the field officer will flag the Rs. 10,000 discrepancy and issue a deficiency notice. Reconcile values before the BoE is filed — issue a debit note if needed.
• Lapsed LUT: An LUT filed for FY 2025-26 does not cover any supply dated on or after 1 April 2026. Confirm your FY 2026-27 LUT acknowledgment number appears on every SEZ invoice raised from April 2026 onwards.

Portal and Reporting Errors

• Wrong Place of Supply in GSTR-1: If the Place of Supply is reported as your home state instead of the SEZ state, the transaction does not appear as an inter-state zero-rated supply and the refund module will not recognise it. Correct this via an amended GSTR-1 before filing RFD-01.
• Wrong refund category in RFD-01: Selecting "Export of goods or services" instead of "Supplies to SEZ unit/developer" is a common mistake. The documents required under each category differ, and the portal will trigger a deficiency memo the moment the proper officer opens the file.
• Mismatch between Statement 4 and GSTR-1: Invoice numbers, dates, and values in your uploaded statement must match GSTR-1 data character for character. Even a rounding difference of Re. 1 will generate a query.

Timing Errors

• Clubbing multiple financial years in one RFD-01: ITC accumulated in FY 2025-26 cannot be merged with FY 2026-27 supplies in a single refund application. Maintain strict year-wise segregation in your workings and in the claim.
• Filing after the two-year deadline: No condonation is available under the CGST Act for this. Treat it as an absolute hard stop, not a guideline.

What to Do When Your SEZ Refund Is Rejected or Queried

If you receive a deficiency memo in Form RFD-03: This means the proper officer found the application incomplete but not necessarily wrong on merits. You must re-file a fresh RFD-01 with corrected or additional documents. The original filing date does not protect you; only the fresh filing date counts. File it well before the two-year deadline expires.

If you receive a rejection order in Form RFD-06: File an appeal under Section 107 of the CGST Act before the Appellate Authority within 3 months from the date of the rejection order. Do not sit on this — 3 months passes quickly, and the appellate remedy is your primary legal recourse.

If the endorsement itself is incorrect: Approach the Development Commissioner's office for a corrigendum endorsement citing the error and the correct details. Once the corrected entry reflects on SEZ Online, re-submit your refund application with the updated documentation.

Before a show-cause notice becomes a rejection: Under subsequent CBIC guidance, proper officers are directed to give applicants a reasonable opportunity to respond before issuing a rejection. If you receive a show-cause notice proposing rejection, respond within the given time with a point-by-point reply and supporting documents. Many rejections are preventable at this stage — a well-drafted response citing the correct rule and attaching the missing document is often sufficient.

Key Takeaways

• Zero-rating under Section 16(1)(b) of the IGST Act applies only when the SEZ officer's endorsement confirms the supply was received for authorised operations — this is non-negotiable and cannot be substituted with any other document.
• Choose your route — LUT (Rule 89) or IGST payment (Rule 96) — before the first supply of FY 2026-27 and apply it consistently across all GSTR-1 filings for that year to avoid mid-year reconciliation problems.
• File your FY 2026-27 LUT on the GST portal before your first SEZ invoice of the year; record the LUT reference number on every SEZ invoice you raise.
• The endorsed Bill of Export on SEZ Online (for goods) or the written endorsement from the authorised officer (for services) is the single most critical document in your refund file — build a delivery-plus-48-hour follow-up SOP with your SEZ customer to secure it promptly.
• Track the two-year refund window from the BoE endorsement date, not the invoice date; maintain a rolling tracker with the filing deadline for every invoice and review it monthly.
• Provisional refund of 90% under Rule 91 is triggered within 7 days of the acknowledgment date — file correct, complete applications to activate this release quickly rather than waiting for a perfect set of documents.
• Mismatch between your invoice, the BoE value, GSTR-1 data, and the uploaded statement is the leading cause of deficiency memos; a 30-minute reconciliation check before filing prevents weeks of back-and-forth with the proper officer.