Gujarat High Court in its recent ruling in the case of M/s Britannia Industries Ltd has adjudged that SEZ is entitled to claim refund of the IGST distributed by input service distributor and lying in the Electronic Credit Ledger as there is no specific supplier who can claim the refund under the provisions of the CGST Act and the CGST Rules.
Facts of the Case:
The petitioner a limited company has filed this petition through its director. The petitioner which is situated in Special Economic Zone (for short “SEZ”) filed an application for refund in Form GST RFD-01A with regard to the credit of “IGST” distributed by Input Service Distributor (“ISD”) for the services pertaining to the SEZ unit for an amount of Rs.99,05,156/- for the year 2018-2019.
It is the case of the petitioner that being a SEZ unit making zero rated supplies under the GST, the petitioner was not able to utilize the credit of the Input Tax Credit of IGST from its ISD and it was lying unutilized in the Electronic Credit Ledger of the petitioner.
The petitioner therefore, made an application to claim such refund which was rejected after issuance of SCN against which application was filed by petitioner before Gujarat High Court.
Arguments by Petitioner for GST refund:
- Entire scheme of the GST does not restrict any distribution of common credit by an ISD to an SEZ unit and on a conjoint reading of section 16 of the IGST Act and section 54 of the CGST Act, the petitioner is entitled to get the refund of unutilized ITC lying in the Electronic Credit Ledger.
- As per circular no. 17 dated 15th November, 2017 issued by GST policy wing of Central Board of Excise and Customs to submit that unutilized ITC of IGST paid and distributed by ISD is required to be refunded after the application is filed by the petitioner in FORM-GST-RFD-01A after 14th May, 2019 as per the said circular.
- Refund being inclusive in nature, the same is also required to be granted with regard to unutilized input tax credit under section 54 of the CGST Act. Reliance was also placed on the decision of this Court in case of M/s. Amit Cotton Industries rendered in Special Civil Application No. 20126 / 2018 on 27th June, 2019, wherein in similar facts, this Court allowed the claim made by the petitioner for refund of the IGST in case of an export unit.
Arguments of the Revenue against GST refund:
- The petitioner is not entitled to refund of the ITC as the petitioner is an SEZ unit and all supplies to such unit is a zero rated supply as per section 16(1) of the IGST Act and as such, only the supplies of goods or services or both to SEZ developer or SEZ co-developer or SEZ unit is eligible for claim of refund and there is no provision for granting of refund to the SEZ unit in the IGST Act, 2017 except the procedure prescribed under section 16(3) of the IGST Act.
- In view of the provision of section 54 of the CGST Act read with Rule 89 of the CGST Rules only a supplier of goods or services can file an application for refund and not recipient of the services. As in the facts of the case, the petitioner is a recipient of service; the petitioner is not entitled to get the refund under the provisions of the CGST Act read with the CGST Rules.
- There is no circular, notification or guidelines issued by the Government or Central Board of
Indirect Taxes and Customs to process the input tax credit refund claims of the units located in the SEZ and therefore, the competent authority has rightly rejected the claim of the refund made by the petitioner by passing the impugned order.
Gujarat High Court: Deliberation and Ruling on GST refund to SEZ
- Rule 89 of the CGST Rules provides for procedure for application for refund of tax, interest, penalty, fees and prescribes that in respect of supplies to a SEZ unit, the application for refund has to be filed by the supplier of goods or services.
- The contention of the respondents that as the petitioner is not the supplier of the goods and services, the petitioner would not be entitled to file application for refund is not tenable because in facts of the present case, input service distributor i.e. ISD as defined under section 2(61) of the CGST Act is an office of the supplier of goods and services which receives tax invoices issued under section 31 of the CGST Act towards the receipt of input services and issues a prescribed document for the purpose of distributing the credit of CGST, SGST Or IGST paid on such goods or services.
- Therefore, in facts of the case, it is not possible for a supplier of goods and services to file a refund application to claim the refund of the input tax credit distributed by ISD. Therefore, the stance of the department that the petitioner is not entitled to seek the refund of the ITC paid in connection with goods or services supplied to SEZ unit is not tenable.
- We are of the opinion that in view of the decision in case of M/s. Amit Cotton Industries, the petitioner is entitled to claim refund of the IGST lying in the Electronic Credit Ledger as there is no specific supplier who can claim the refund under the provisions of the CGST Act and the CGST Rules as input tax credit is distributed by the input service distributor.
In view of above the Gujarat High Court allowed the petition. The impugned order is quashed and set aside. The respondents are directed to process the claim of refund made by the petitioner for unutilized IGST credit lying in Electronic Credit Ledger under section 54 of the CGST Act, 2017. Such exercise shall be completed within three months from the date of receipt of the writ of this order.
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