Many SEZ units want to sell some of their output in India. The law allows this, but it is treated as an import into the Domestic Tariff Area (DTA), with duty and GST consequences that surprise unprepared businesses. This article explains the main rules.

The core rule: goods leaving the SEZ for the DTA are dutiable

Section 30 of the SEZ Act, 2005 provides that goods removed from an SEZ into the DTA are chargeable to customs duties as if they were imported. The DTA buyer files a Bill of Entry and pays the applicable duty, including IGST. Rule 47 and the related rules of the SEZ Rules, 2006 govern the procedure and valuation. Services supplied from an SEZ unit to the DTA are dealt with under the GST law and the permissions in the Rules.

Supplies INTO an SEZ are zero-rated

Under Section 16 of the IGST Act, 2017, supplies of goods or services to an SEZ developer or unit for authorised operations are zero-rated. A DTA supplier has two routes:

• supply under Letter of Undertaking (LUT) or bond without payment of IGST and claim refund of accumulated input tax credit; or
• supply on payment of IGST and claim refund of the tax paid.

The supply must be for the SEZ unit's authorised operations, and the documents prescribed (including endorsement by the Specified Officer for goods) must be in place, otherwise the benefit can be denied.

NFE and DTA sales

DTA sales do not earn foreign exchange. Heavy DTA sales reduce the unit's ability to remain NFE positive over the five-year block, and the SEZ authorities may question permission for excess domestic clearance. Plan product mix and clearances accordingly.

Returned and rejected goods: 2026 amendment

The Special Economic Zones (Third Amendment) Rules, 2026 (G.S.R. 893(E), dated 15 October 2026) substituted Rule 49(2), which deals with return, resale, refund of duty and repair of duty-paid goods supplied to the DTA. One condition now provides that where the DTA buyer does not take delivery because of a change in fashion, a change in market conditions or default in the terms of sale, the duty-paid goods must be brought back by the unit within thirty days from clearance, subject to the conditions in the Rule. Units should review their sale contracts and returns procedure against the revised text.

Common pitfalls

• Treating a DTA sale as an export in the books and in the NFE statement;
• Forgetting the Bill of Entry compliance by the DTA buyer, leading to disputes over who pays the duty;
• Claiming refund without the SEZ endorsement documents;
• Not reconciling GSTR returns with the customs records.

When disputes arise

Customs and GST demands against SEZ units are adjudicated in the usual forums, with appeals to the appellate authorities and then the Tribunal. Where authorities act without jurisdiction or breach natural justice, a writ petition may be considered.

Need Guidance? Contact KC LEGAL

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This article is for general information only and is not legal advice. Law and procedure change; please verify the current position for your specific case. Last reviewed: November 2026.