• Dated 07^th May, 2026

Insurance Services Supplied to SEZ Units Treated as Zero-Rated Prior to Amendment; Retrospective GST Demand Stayed: Bombay High Court

BRIEF FACTS:

The Petitioner, being insurance companies, supplied insurance services to various Special Economic Zone ("SEZ") units during FY 2017-18 up to 30 September 2023 and treated such supplies as zero-rated supplies under Section 16 of the Integrated Goods and Services Tax Act, 2017 ("IGST Act"). The Department had accepted the said position during the relevant period. Subsequently, by the Finance Act, 2021, the words "for authorized operations" were inserted in Section 16(1)(b) of the IGST Act and the amendment was brought into force with effect from 01.10.2023 by Notification No. 27/2023-Central Tax dated 31.07.2023. Thereafter, Show Cause Notices were issued demanding GST retrospectively for the period prior to 01.10.2023 on the ground that the insurance policies were issued for the benefit of employees and therefore did not qualify as supplies for authorized operations of SEZ units. Aggrieved by the retrospective levy, the petitioner approached the Bombay High Court challenging the notices and consequential orders.

ASSESSEE'S CONTENTION:

The Assessees contended that prior to 01.10.2023 there was no requirement under Section 16 of the IGST Act that supplies to SEZ units must be "for authorized operations" to qualify as zero-rated supplies. It was submitted that the amendment introduced by the Finance Act, 2021 operates prospectively and could not be applied retrospectively to supplies made before its enforcement. The Assessees further contended that the Department had incorrectly treated the notification bringing the amendment into force as a clarification applicable to the earlier period. It was also submitted that the SEZ units had subscribed to the insurance policies and paid consideration and therefore qualified as "recipient" under Section 2(93) of the CGST Act. Reliance was also placed on the Ministry's Instruction dated 02.01.2018 recognizing general insurance services as approved authorized services for SEZ units.

DEPARTMENT'S CONTENTION:

The Department contended that the insurance policies were issued for the benefit of employees and not for the SEZ units themselves. It was argued that after insertion of the words "for authorized operations" in Section 16(1)(b), such supplies would not qualify as zero-rated supplies. The Department further submitted that the amendment merely clarified the existing legal position and therefore retrospective demand of GST was justified.

DECISION:

The Bombay High Court observed that substantial questions arose regarding the jurisdiction of the designated officer to retrospectively levy GST on insurance services supplied to SEZ units for the period prior to 01.10.2023. The Court noted that the amendment inserting the words "for authorized operations" had been brought into force only with effect from 01.10.2023. The Court further observed that under Section 2(93) of the CGST Act, the "recipient" of a supply is the person liable to pay consideration and, in the present case, the SEZ units had subscribed to the insurance policies though the employees were beneficiaries under the policies. Considering the arguable issues involved, the Court granted interim protection and stayed the operation of the impugned orders arising from the show cause notices pending final disposal of the petitions.

BTA's COMMENT:

The decision addresses the issue of retrospective application of the amendment made to Section 16 of the IGST Act concerning supplies made to SEZ units. The Bombay High Court has prima facie accepted the contention that the condition requiring supplies to be "for authorized operations" became operative only from 01.10.2023 and could not automatically be applied to prior periods. The order also emphasizes that determination of the "recipient" under GST law depends upon the person liable to pay consideration. The decision assumes significance in matters involving retrospective denial of zero-rated benefits in respect of supplies made to SEZ units prior to the amendment coming into force.

Case Reference- ICICI Lombard General Insurance Co. Ltd. v. Union of India reported at 2026 (41) Centax 426 (Bom.).

Author - Shristy Pathak

Edited by - Madhurima Bose