GST Update on SEZ units entitled to claim refund of credit distributed by ISD 134/2020-21

In the past months, decisions pronounced in respect of refund related issues has been path breaking like VKC Footsteps India Pvt. Ltd. vs. Union of India (R/Special Civil Application No. 2792 of 2019 dated 24/07/2020), Britannia Industries Limited Vs Union of India (R/Special Civil Application No. 15473 of 2019 dated 11/03/2020) etc. This update has been prepared for detailed discussion about promulgated decision of Britannia which is very useful for SEZs units.
The Petitioner, having a unit situated in Special Economic Zone filed an application for refund in Form GST RFD-01A with regard to the credit of Integrated Goods and Services Tax distributed by Input Service Distributor for services related to the SEZ unit, amounting to Rs.99,05,156/- for the year 2018-2019.
The Petitioner was making zero rated supplies under the GST and was not able to utilize the credit of Input Tax Credit of IGST from its ISD, which was lying unutilized in the Petitioner’s electronic credit ledger. Thus, the Petitioner made an application to claim such refund.
The Deputy Commissioner, Central GST Mundra Division, Gandhidham (referred to as “Respondent”) rejected the refund on the grounds that the Petitioner, being situated in SEZ unit, received zero rated supply of goods and services and there is no provision under Section 54 of the Central Goods and Services Act, 2017 for granting refund to the recipient of service. The revenue authorities also contended that there is no circular, notification or guidelines issued by the Board to process GST refund claim application of SEZ units.
Aggrieved by the order of the Respondent dated 01.08.2019, the Petitioner approached the High Court under Article 226 of the Constitution of India.
The High Court observed that as per the definition of ISD under Section 2(61) of the CGST Act and the facts of the present case, it is not possible for a supplier of goods and services to file a refund application to claim refund of input tax credit distributed by the ISD. The Court heavily relied on the decision of M/s Amit Cotton Industries v. Principal Commissioner of Customs, SCA No.20126/2018 and referred the aspects of refund therein, wherein the Petitioner’s claim for refund of IGST concerning an export unit was allowed on the grounds that circular restricting claiming higher rate of drawback by the exporter cannot lead to denial of refund of IGST when the petitioner had surrendered the excess drawback availed.
Relying on the aforesaid judgment, the Court further concluded that a specific supplier does not exist who is entitled to claim refund on the input tax credit as per the provisions under CGST Act and Rules, owing to the fact that the input tax is distributed by the ISD and hence, the petitioner itself is entitled to claim the said refund. Therefore, the High Court allowed the writ petition and quashed the impugned order passed by the Respondent.

The High Court has been very magnanimous with the assessee across India and declaring the decisions keeping in mind the intention of law. This decision will bring a big relief as this order will clear the backlog of refunds filed by SEZ in entire India in as much as the GST tax regime is new and such issues need to be cleared at an early stage otherwise the entire trade will face the hardship.
This is solely for educational purpose.
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GST Update on SEZ units entitled to claim refund of credit distributed by ISD 134/2020-21

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