THE SEZ–GST CONUNDRUM: IMPACT OF STATUTORY CONFLICTS ON SUPPLY CHAIN PRICING - A Doctrinal and Empirical Assessment of Tax Neutrality, Refund Frictions and Supplier Pricing Behaviour

Abstract

The Special Economic Zone (SEZ) regime was designed to promote exports, investment and internationally competitive production through a relatively insulated fiscal and regulatory environment. The introduction of the Goods and Services Tax (GST) in 2017 altered this architecture by moving SEZ-linked supplies into a zero-rated, refund-dependent framework. Although zero-rating is intended to preserve tax neutrality, the coexistence of the Special Economic Zones Act, 2005 and the GST statutes has generated legal and administrative frictions concerning the status of SEZ transactions, authorised operations, place-of-supply rules, input tax credit and refund procedures. These frictions can convert a formally tax-neutral transaction into one carrying financing, compliance and risk costs. This paper examines whether those costs affect pricing behaviour in SEZ-linked supply chains. The study adopts a mixed doctrinal and empirical approach. The doctrinal component analyses the SEZ Act, 2005, the Central GST Act, 2017, the Integrated GST Act, 2017, the relevant rules, administrative mechanisms and selected judicial decisions. The empirical component draws on a structured questionnaire administered to 120 respondents involved in SEZ transactions in the Coimbatore Industrial Cluster and the Sriperumbudur–Chennai SEZ Corridor. Percentage analysis and chi-square testing were used to examine regulatory understanding, compliance burden, refund experience, working-capital impact and pricing behaviour. The analysis indicates that the formal zero-rating objective is weakened by refund delays, documentation requirements, uncertainty surrounding authorised operations, digital and institutional coordination problems and the resulting blockage of working capital. Across the sample, 84 of 120 respondents reported GST refund delays, 82 reported higher compliance burden, 80 reported high working-capital impact, and 72 reported a pricing impact. The paper argues that the principal policy problem is not simply the existence of two statutes, but the absence of effective harmonisation between their underlying fiscal philosophies and administrative institutions. It recommends legislative clarification, standardised authorised-operation treatment, faster and more transparent refund processing, stronger GSTN–ICEGATE integration, targeted support for small suppliers and coordinated SEZ–GST governance.