2020 (9) TMI 294 - HC - GST

Refund of unutilized IGST credit lying in Electronic Credit Ledger - 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 - applicability of Rule 89 or 96 of CGST Rules. HELD THAT - In the present case, instead of Rule 96, Rule 89 would be applicable which is pertaining to refund of the input tax credit. 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. This aspect is further fortified by notification no. 28/2012 dated 20th June, 2012 which was in connection with service tax attributable to the services used in more than one unit to be distributed pro-rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units and similarly, in facts of the present case also, credit of service tax is distributed to all the units by the ISD and therefore, the claim of refund made by the SEZ unit of the petitioner is required to be granted. In view of the decision in case of M/s. Amit Cotton Industries 2019 (7) TMI 472 - GUJARAT HIGH COURT , 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. 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 - Petition allowed.

Issues Involved:
1. Entitlement to refund of unutilized IGST credit lying in the Electronic Credit Ledger.
2. Rejection of refund claim by the Deputy Commissioner, CGST.
3. Applicability of Section 54 of the CGST Act and Rule 89 of the CGST Rules.
4. Alternative remedy of filing an appeal under Section 107 of the CGST Act.
5. Interpretation of provisions related to SEZ units under the IGST Act.
6. Binding nature of circulars and instructions issued by the Central Government.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of Unutilized IGST Credit:
The petitioner, a SEZ unit, claimed a refund of unutilized IGST credit distributed by the Input Service Distributor (ISD). The petitioner argued that under Section 16 of the CGST Act, input tax credit (ITC) is available for supplies used in the course of business. The petitioner relied on Section 2(61) of the CGST Act, which defines an ISD and its role in distributing ITC, and argued that the refund should be granted as there is no express provision rejecting such a claim under the CGST Act.

2. Rejection of Refund Claim by Deputy Commissioner, CGST:
The Deputy Commissioner rejected the refund claim on several grounds, including:
- Supplies to SEZ units are zero-rated and not eligible for refund under Section 54 of the CGST Act.
- The refund cannot be processed under any specified category in the manual refund processing circulars.
- SEZ units are not supposed to pay any tax on supplies received, thus no ITC is applicable.
- No relevant guidelines exist for processing GST refund claims for SEZ units.

3. Applicability of Section 54 of the CGST Act and Rule 89 of the CGST Rules:
The petitioner argued that Section 54 of the CGST Act, which deals with refunds, and Rule 89 of the CGST Rules, which prescribes the procedure for refund applications, should be interpreted to allow the refund of unutilized ITC. The petitioner contended that the entire GST scheme does not restrict the distribution of common credit by an ISD to an SEZ unit and that a conjoint reading of Section 16 of the IGST Act and Section 54 of the CGST Act supports their claim.

4. Alternative Remedy of Filing an Appeal:
The respondents raised a preliminary objection, arguing that the petition is not maintainable as the petitioner has an alternative remedy of filing an appeal under Section 107 of the CGST Act. The respondents cited a case from the High Court of Madras, which emphasized the strict construction of the alternative remedy in tax matters.

5. Interpretation of Provisions Related to SEZ Units under the IGST Act:
The respondents argued that under Section 16(1) of the IGST Act, supplies to SEZ units are zero-rated, and only the supplier of goods or services can claim a refund. They contended that the petitioner, being a recipient of services, is not eligible for a refund. The respondents also pointed out that no circular or notification provides guidelines for processing ITC refund claims for SEZ units.

6. Binding Nature of Circulars and Instructions Issued by the Central Government:
The petitioner relied on a circular issued by the GST policy wing, which they argued supports their claim for a refund. The court, however, noted that circulars are not binding on the court and cannot override statutory provisions. The court referred to previous Supreme Court decisions that emphasized the limited binding nature of circulars on revenue authorities and not on the judiciary.

Judgment:
The court referred to the provisions of the CGST Act, IGST Act, and CGST Rules, as well as a previous decision in the case of M/s. Amit Cotton Industries. The court concluded that the petitioner is entitled to a refund of the unutilized IGST credit lying in the Electronic Credit Ledger, as there is no specific supplier who can claim the refund under the CGST Act and Rules. The court directed the respondents to process the refund claim within three months from the date of receipt of the order. The impugned order was quashed and set aside, and the petition was allowed.

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