The Office of the Development Commissioner, Indore Special Economic Zone (SEZ) has issued a circular advising SEZ units not to avail Integrated Goods and Services Tax (IGST) exemption on canteen services provided for employees. The direction has been issued in light of audit observations and the decision taken by the Board of Approval (BoA) for SEZs.
According to Circular issued vide F. No. A-55/ISEZ/OC/2009-10/20/4 dated 11th March 2026, several SEZ units were found to be availing IGST exemption on canteen services procured from Domestic Tariff Area (DTA) service providers for their employees.
During audits conducted under Rule 79 of the SEZ Rules, 2006 by the Office of the Commissioner of Customs, Indore, it was observed that such services were being treated as part of authorized operations by certain units. However, audit findings indicated that canteen services for employees do not qualify as authorized services eligible for GST exemption.
The matter was also examined by the Board of Approval for SEZs during its 135th meeting held on 30 December 2025. After deliberations, the Board observed that while SEZ units may operate canteens for their employees, food and catering services provided to employees cannot be considered as authorized operations for the purpose of GST benefits or zero-rated supplies.
The Board further clarified that the determination of authorized services is governed by instructions issued by the Department of Commerce, including SEZ Instruction Nos. 79 and 95, under which food supplied to employees—whether directly by the unit or through DTA vendors—does not qualify for tax exemption.
In view of this decision, all SEZ units have been advised not to avail IGST exemption on canteen services. Units have also been advised to liquidate any outstanding tax demand arising from such claims, if applicable.
The circular has been issued with the approval of the Development Commissioner, Indore SEZ, and has been circulated to concerned authorities including the Principal Commissioner of Customs, Indore, the Specified Officer (Customs), the Developer of Indore SEZ, and all SEZ units operating in Pithampur SEZ and IT/ITES SEZs.
The Circular can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/03/Circular-Indore-SEZ.pdf
