Sangeetha Prathap

The Customs Authority for Advance Rulings (CAAR), Mumbai, through Prabhat K. Rameshwaram, has ruled that Seros Energy Private Limited is entitled to claim IGST exemption on the movement of rig-related equipment from a Free Trade Warehousing Zone (FTWZ) to a Domestic Tariff Area (DTA) under a lease arrangement. The ruling affirms that the benefit of Sr. No. 557B of Notification No. 50/2017-Customs remains available even when the GST liability on the lease service is discharged by the lessor rather than the lessee.

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Background of the Application

Seros Energy, a company engaged in the land-rig services sector, had imported specialised rig components into India in 2024 and stored them in an FTWZ operated by Sarveshwar Logistics Services Pvt. Ltd. under a Z-type Bill of Entry, which allows duty-free warehousing within SEZ/FTWZ units. The equipment was later intended to be leased to a drilling contractor awarded an Oil India Ltd. project in Assam for deployment of a 3000 HP land rig. Anticipating that the goods would be moved from FTWZ to DTA pursuant to the lease, Seros sought an advance ruling on whether such clearance would attract IGST or qualify for exemption under Sr. No. 557B of Notification 50/2017.

Issue Before CAAR

The central issue was whether goods stored in an FTWZ but supplied on lease by a DTA-located company qualify as an SEZ-to-DTA transaction, enabling IGST exemption under Notification 50/2017-Customs.

Applicant’s Submissions

Seros argued that FTWZ units are statutorily recognised as SEZs under Section 2(n) of the SEZ Act, 2005, and are expressly permitted to store goods on behalf of DTA suppliers and undertake FTWZ-to-DTA transactions. It submitted that movement of goods from FTWZ to DTA constitutes “import” under Section 30 of the SEZ Act and must therefore be eligible for customs exemptions applicable to imports. Further, Seros stressed that the lease qualifies as a “transfer of the right to use goods” under items 1(b) and 5(f) of Schedule II of the CGST Act and therefore falls within the scope of Sr. No. 557B. The company pointed out that it would already be paying GST on the lease rentals and that levying IGST again on the goods would result in double taxation.

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Findings of CAAR

CAAR accepted that lease transactions fall within Schedule II of the CGST Act, as they involve transfer of the right to use goods without transfer of title. The Authority noted that the FTWZ concerned is legally a Special Economic Zone, and therefore movement of goods from FTWZ to DTA is treated as a supply from SEZ to DTA. In that context, CAAR held that Sr. No. 557B of Notification 50/2017 applies to the proposed transaction, subject to fulfilment of Condition 102.

A significant clarification was provided regarding Condition 102, which ordinarily requires the importer to execute a bond undertaking to pay IGST on lease services under reverse charge. CAAR held that “the condition requiring execution of bond under clause (i) of Condition 102 stands dispensed with” because in this case the supplier—Seros Energy—is itself located in taxable territory and is liable to pay GST on lease services under forward charge. Since the objective of the exemption is to prevent double taxation, insisting on IGST again on the goods would defeat the purpose of the notification.  The remaining requirements of Condition 102—namely, not selling the goods, returning the leased goods after the expiry of the lease, and payment of the IGST amount in case of violation—are still applicable.

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CAAR ruled in favour of Seros Energy, confirming that the IGST exemption under Sr. No. 557B of Notification No. 50/2017-Customs is available for the lease-based transfer of rig equipment from FTWZ to DTA. The requirement for the importer to execute a bond for paying IGST on the service under reverse charge does not apply, since GST is already being paid by the lessor in India. With the exemption held admissible, the question of IGST rate became irrelevant.

Applicant’s Name: Seros Energy Private Limited