The petitioner has two production facilities and a head office in India. The Special Economic Zone Unit (SEZ), located in Gangaikondan Village, Tirunelveli District, is one of the petitioner’s units and the focus of the aforementioned writ petition.
In accordance with Section 2(61) of the CGST Act, 2017, the petitioner’s head office in Mumbai acquired several categories of common services, and the proportional credit was transferred to the petitioner’s SEZ unit.
The petitioner was entitled to a refund of the tax paid on input and input services under Section 16(3)(i) of the IGST Act because exports produced from its SEZ unit were “Zero-rated supplies” under the definition of Section 2(23) of the IGST Act.
To get a refund of unused IGST (which was allocated by its ISD) related to zero-rated supply, the SEZ unit submitted an application in Form GST RFD-01A.
In light of the provisions of section 54 of the CGST Act read with Rule 89 of the CGST Rules, which states that only a supplier of goods or services, and not the recipient of the goods or services, can file the refund application for supplies made to an SEZ unit, the department rejected the said refund application, and the rejection was upheld by the Joint Commissioner (Appeals).
Being aggrieved by the aforementioned orders, the petitioner has filed this writ petition before the Hon’ble High Court and the Petitioner contended that the entire scheme of 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, section 54 of the CGST Act and Rule 89 of the CGST Rules, 2017, the Petitioner is entitled to get the refund of unutilized ITC lying in the Electronic Credit Ledger.
The court observed that the supplier of such common services to the petitioner’s Head office could not have claimed any refund either under 16(3)(b) of the IGST Act, 2017 as such a supply did not qualify as a “zero-rated supply”. Therefore, there is no question of the supplier claiming a refund under Section 16(3)(a) or (b) of the IGST Act, 2017 or section 54(3) of CGST Act r/w rule 89 of CGST Rules.
Court also observed that once the supplies qualified as zero-rated supplies, a refund in terms of section 16(3)(a) cannot be denied. Sub-section (3) and (10) complement section 16 of the IGST Act, 2017.
The court stated that the purpose of granting a refund on zero-rated supply is to ensure that the exports are competitive in the international market and such transactions are not burdened with taxes.
Section 54 of the CGST Act allows the refund and includes a refund in case of zero-rated supplies without payment of tax. Proviso to section 54(3) allows a refund of unutilised ITC in said case and there is no bar in rule 89(1) of the CGST Rules, 2017 for a refund of unutilised ITC.
The Hon’ble High Court in the current case determined that the impugned judgment made by the authorities rejecting the petitioner’s advantage of a refund of unused input tax credits from zero-rated goods had no basis. As a result, the petition has been granted, together with the aforementioned remarks and any subsequent remedy.
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