2023 (3) TMI 56 - HC - GST

Refund of IGST - Refund to the SEZ when it is not required to actually fulfill the supplier s obligation as has been reiteratively contended before this Court - Export of Goods/Services without payment of tax - It is the case of the petitioner that CGST Act does not make any distinction between a SEZ unit and other registered persons so far as eligibility of ITC is concerned - according to the petitioner, the appellate authority erred in holding that Section 54(3) of the CGST Act read with Rule 89(1) and Rule 89(2)(f) of the CGST Rules mandates only the supplier to claim the refund of ITC - HELD THAT - There is no express denial of refund of output tax or ITC to a SEZ under Section 54. Therefore, the averment that since the supply to SEZ unit is a zero rated, the units situated in SEZ are not eligible for refund under Section 54 of the Act is not sustainable. The SEZ since is considered as zero rated supply in terms of 16 of the IGST Act, such supplier is exempted from IGST. The notification No.15 of 2017 integrated tax dated 30th June, 2017 provides that the suppliers supplying the goods at SEZ can supply under the bond or electronic undertaking without payment of IGST and claim credit of ITC or can supply on payment of IGST or claim refund of taxes paid - It is an additional burden on the administration, the respondents authorities to verify whether the supplier has claimed the refund or not and whether the SEZ unit has actually paid the taxes to the supplier. A system since is not geared up for the same, the concern has multiplied. Any inadvertent payment of the amount of taxes to the supplier in wake of thousands of such transactions happening everyday in the SEZ, it is urged that no exceptions be made. An attempt is made to distinguish the matter on the facts and particularly, since the petitioner is non- SEZ by pointing out that the one which is decided in M/s. Britannia Industries 2020 (9) TMI 294 - GUJARAT HIGH COURT is in relation to the credit of IGST distributed by ISD for the services pertaining to the SEZ unit, as it was not possible for a supplier to file refund application to claim the refund of ITC distributed by the ISD. It is also the stand of the department that the matter is pending in the form of SLP No.13431 of 2021 before the Apex Court. It is fairly admitted that no stay has been granted. Not only this decision but also M/s.IPCA Laboratories versus Commissioner in 2022 (2) TMI 947 - GUJARAT HIGH COURT covers this issue squarely with a specific undertaking having been tendered along with the application for the refund that the supplier has not claimed any refund and any eventuality of the supplier having been given the refund, the petitioner is taking the responsibility to make good the amount which may have been given will need to be borne in mind and accordingly, this petition is allowed, quashing the order passed by the Commissioner (Appeals) for the period of September, 2018 to December, 2019 and Assistant Commissioner for the period of 2020 to November, 2021 that the respondent grant the refund of ITC to the petitioner after proper verification and by obtaining a specific undertaking / bond from the petitioner where by stating that if the supplier at any point of time has taken refund and it comes to the notice of the department, then department will be in a position to recover it with interest. Petition disposed off.

Summary

Issues Involved:
1. Eligibility of SEZ units to claim a refund of unutilized Input Tax Credit (ITC) under Section 54(3) of the CGST Act.
2. The procedural requirements for claiming refunds by SEZ units.
3. The role of Input Service Distributors (ISD) in distributing ITC and the eligibility of SEZ units to claim refunds for such distributed ITC.
4. The legal standing of the respondent's argument against the eligibility of SEZ units for ITC refunds.

Detailed Analysis:

1. Eligibility of SEZ Units to Claim Refund of Unutilized ITC:
The petitioner, an SEZ unit engaged in manufacturing and exporting goods, faced issues with unutilized ITC due to supplies received from non-SEZ suppliers who levied IGST. The petitioner filed refund applications under Section 54(3) of the CGST Act and Rule 89(4) of the CGST Rules for the periods of September 2018 to December 2019 and January 2020 to November 2021. The refunds were initially rejected by the Assistant Commissioner and subsequently by the Commissioner (Appeals). The petitioner argued that the CGST Act does not distinguish between SEZ units and other registered persons regarding ITC eligibility. The High Court noted that SEZ units are not expressly excluded from ITC refunds under Section 54, and thus, the petitioner's claim for refunds was valid.

2. Procedural Requirements for Claiming Refunds by SEZ Units:
The respondent contended that under Section 54(3) of the CGST Act and Rule 89(1) of the CGST Rules, only the supplier could claim the refund of ITC. The petitioner challenged this interpretation, asserting that SEZ units should be eligible for ITC refunds as they are not excluded under the GST framework. The High Court referred to the procedural guidelines and emphasized that the petitioner had specified that the supplier had not claimed the refund and had taken responsibility for any discrepancies. The Court found that the petitioner's procedural compliance was in line with the legal requirements and directed the refund to be processed accordingly.

3. Role of Input Service Distributors (ISD) in Distributing ITC:
The petitioner argued that it was not feasible for a supplier to file a refund application for ITC distributed by an ISD. The High Court referred to the definition of ISD under Section 2(61) of the CGST Act, which allows the distribution of ITC to various units. The Court acknowledged that the petitioner, being an SEZ unit, was entitled to claim refunds for ITC distributed by ISD, as it was not possible for the supplier to claim such refunds. This interpretation was supported by previous judgments, including M/s. Britannia Industries versus Union of India, which dealt with similar issues.

4. Legal Standing of the Respondent's Argument Against ITC Refunds:
The respondent argued that SEZ units should not claim refunds as they enjoy tax-free supplies under the SEZ Act and that the responsibility to verify refund claims should not fall on the department. The High Court rejected this argument, stating that SEZ units are eligible for ITC refunds under the GST framework. The Court emphasized that procedural mechanisms should not obstruct the legitimate claims of SEZ units and directed the department to process the refunds with appropriate verification and undertakings from the petitioner.

Conclusion:
The High Court quashed the orders rejecting the refund claims and directed the respondents to process the refunds for the petitioner's unutilized ITC within eight weeks, subject to proper verification and undertakings. The judgment reinforced the eligibility of SEZ units to claim ITC refunds and clarified the procedural aspects related to such claims.