GST UPDATE ON ELIGIBILITY TO CLAIM REFUND OF UNUTILISED ITC BY SEZ UNIT FOR SUPPLIES RECEIVED FROM DTA163/2020-21

We all know that supply of goods or services or both to a SEZ unit is considered as zero rated supply under section 16 of the IGST Act, 2017 and is eligible for refund benefits under section 54 of CGST Act, 2017. However, whether SEZ units exporting goods are eligible for claiming refund of accumulated input tax credit on purchases made from DTA units is the moot question which was recently discussed in the decision given by GST Appellate authority in the case of M/s VAACHI INTERNATIONAL PVT. LTD. It was held that the SEZ unit/developers are not eligible to claim any refund of accumulated input tax credit (ITC) with respect to supplies received by them from DTA units as GST Law facilitates only suppliers who made supplies to SEZ unit/developers to claim refund of tax paid. The analysis of this decision is the subject matter of consideration in our present update.

The appellant is SEZ unit engaged in the business of export of dried ornamental plant materials. This appeal has been filed against the tax orders passed by the assessing authority for the tax periods from July, 2017 to March, 2018 wherein the refund was rejected by stating that refund can only be claimed by supplier supplying goods to the appellant and that the SEZ unit cannot file refund of accumulated input tax credit. However, the appellant relied upon the provisions of Section 54(3) read with rule 89(2)(f) of CGST Rules, 2017 and submitted that as per the definition of zero rated supply as mentioned in section 16 of the IGST Act 2017, the exports made by SEZ units are eligible for refund as per Section 54(3) of Central Goods and Services Tax Act, 2017. It was also contended that as per the rule 89(2)(f) (prior to amendment) it was mentioned that suppliers to SEZ need to give declaration from the SEZ unit that the SEZ unit has not claimed input tax credit which makes it clear that the SEZ unit can claim input tax credit and the option to claim refund of tax is open to both the SEZ unit and the supplier to the SEZ unit.

The hon’ble appellate authority, GST, Andhra Pradesh observed that, the second proviso to Rule 89(1) stipulates that in respect of supplies to SEZ units/developers, the refund “SHALL” be claimed by suppliers of goods to the SEZ unit or developer only. Further, Rule 89(2)(f) prescribes that SEZ unit/developers shall not avail input tax credit ITC on the supplies received by them from DTA suppliers and refund would be claimed by supplier of SEZ unit/developer only. Thus, a conjoint reading of all the above provisions undoubtedly point towards a conclusion that SEZ unit/developers shall not claim any refund against the ITC involved in supplies received by them from DTA suppliers. Hence, the appellate authority has upheld the order of the assessing authority for rejection of refund claim.

The above decision rigidly interprets the provisions of Rule 89 of CGST Rules, 2017 ignoring the fact that if SEZ unit exports goods out of India, they are eligible like any other DTA unit for claiming refund of accumulated input tax credit under section 54(3) of CGST Act, 2017. In our opinion, the refund of accumulated input tax credit to SEZ unit cannot be denied by merely relying on the provisions of Rule 89 stating that the supplier of goods or services only can claim the refund of tax paid on supplies made to SEZ because what is claimed as refund by SEZ unit is the credit accumulated on goods used for exports which is very well covered within the ambit of zero rated supplies.

This is solely for educational purpose.
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GST UPDATE ON ELIGIBILITY TO CLAIM REFUND OF UNUTILISED ITC BY SEZ UNIT FOR SUPPLIES RECEIVED FROM DTA163/2020-21

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