Facts of the Case

M/s ATC Tires Private Limited, having a Special Economic Zone (SEZ) manufacturing unit at Gangaikondan, Tirunelveli, and an Export Oriented Unit at Dahej, Gujarat, challenged Order-in-Appeal No.151/2021-JC(GSTA) dated 07.10.2021 passed by the Joint Commissioner of GST & Central Excise (Appeals), which upheld rejection of the petitioner's refund claims of accumulated Input Tax Credit totalling Rs. 1,42,11,506 for the period April to September 2019 (Refund Order No.16-2021-2022 dated 16.08.2021 series). The credit had been distributed to the SEZ unit by the petitioner's Head Office in Mumbai as an Input Service Distributor, under Section 2(61) of the CGST Act, in respect of common input services. A show-cause notice dated 27.04.2020 preceded the rejection, chiefly on the ground that only a 'supplier' — not the SEZ unit as recipient — could file a refund claim under the second proviso to Rule 89(1) of the CGST Rules.

Issues Involved

  1. Whether exports effected by the petitioner's SEZ unit constituted 'zero-rated supply' under Section 2(23) read with Section 16 of the IGST Act, 2017, entitling it to refund of unutilised Input Tax Credit.
  2. Whether the second proviso to Rule 89(1) of the CGST Rules, restricting refund applications to the 'supplier,' barred a refund claim filed by the SEZ unit itself as recipient of common input services distributed through its Head Office as an Input Service Distributor.

Petitioner's Arguments

  • Exports from the SEZ unit amounted to 'zero-rated supply' under Section 2(23) of the IGST Act, entitling refund of tax paid on inputs/input services under Section 16(3)(i) of the IGST Act.
  • Common input services procured at the Head Office in Mumbai were distributed as an Input Service Distributor to the SEZ unit, which alone could claim refund since the Head Office itself did not supply goods or services and could not have filed the claim.
  • For an identical prior period (October 2017 to March 2019), the second respondent had itself allowed refund on the same basis, relying on the Gujarat High Court's rulings in Britannia Industries and IPCA Laboratories, and this Court's own ruling in Platinum Holdings Private Limited allowing SEZ refund even on direct third-party supply.
  • The second proviso to Rule 89(1), relied on by the department, was not applicable to deny the claim.

Respondent's Arguments

  • Only the 'supplier' of goods or services to an SEZ unit is entitled to file a refund claim under Section 16(3) of the IGST Act read with Rule 89(1) of the CGST Rules; the petitioner, as recipient, was not so entitled.
  • The subsequent refund order dated 16.08.2021 relied on by the petitioner was based on the Gujarat High Court's Britannia Industries ruling, itself under challenge before the Supreme Court (SLP No.13431 of 2021, admitted), and was itself under departmental appeal.
  • Platinum Holdings was distinguishable, being confined to direct supply and pending in appeal before a Division Bench.
  • The refund claim did not fall within the categories eligible for manual refund processing under CBIC Circulars No.17/17/2017-GST and No.24/24/2017-GST.

Court Order / Findings

  • The export by the petitioner's SEZ unit was held to be a zero-rated supply within the meaning of Section 2(23) read with Section 16 of the IGST Act, 2017; once so classified, refund under Section 16(3)(a) could not be denied, since Sections 54(3) and 54(10) of the CGST Act complement Section 16 of the IGST Act.
  • Refund of unutilised Input Tax Credit is disallowed only where the supplier avails drawback or claims refund of integrated tax on the same supply — admittedly not the case here.
  • The second proviso to Rule 89(1) of the CGST Rules is merely an exception, and there is no bar under Rule 89(1) itself to refund of unutilised ITC to the SEZ unit; the impugned order erroneously proceeded on the assumption that only a 'supplier' could apply.
  • Relying on the Supreme Court's ruling in Unichem Laboratories that authorities must not deprive an assessee of a legitimate benefit available in law, the Court held there was no merit in the impugned order and allowed the writ petition with consequential relief, without costs.

Important Clarification

  • Refund of unutilised input tax credit attributable to a 'zero-rated supply' effected by an SEZ unit under Section 2(23) read with Section 16 of the IGST Act, 2017 cannot be denied merely because the underlying common input services were procured and distributed through the Head Office as an Input Service Distributor; the second proviso to Rule 89(1) of the CGST Rules, restricting refund applications to the 'supplier,' operates only as a narrow exception and does not bar a refund claim filed by the SEZ unit itself as recipient of zero-rated supplies.

Sections Involved

  • Section 2(23) of the IGST Act, 2017 — definition of 'zero-rated supply.'
  • Section 16 of the IGST Act, 2017 — zero rating and refund entitlement for zero-rated supplies.
  • Section 54(3) and 54(10) of the CGST Act, 2017 — refund of unutilised input tax credit and its conditions.
  • Rule 89 of the CGST Rules, 2017 — procedure for refund applications, including the second proviso to Rule 89(1).
  • Section 2(61) of the CGST Act, 2017 — definition of Input Service Distributor.

Decision – In Favour of

In favour of the Assessee — the writ petition was allowed with consequential relief, directing grant of the refund of unutilised Input Tax Credit.

Related Case Laws

  • Britannia Industries Limited vs Union of India, Gujarat High Court [2020 (42) GSTL 3 (Guj.)] (currently under challenge before the Supreme Court).
  • Platinum Holdings Private Limited vs Additional Commissioner of GST and Central Excise (Appeals-II), Madras High Court, W.P.No.13284 of 2020 etc. batch, dated 11.08.2021.

Case Details

  • Court: Madurai Bench of the Madras High Court
  • Case No.: W.P.(MD) No. 949 of 2022
  • Coram: Hon'ble Mr. Justice C. Saravanan
  • Date of Order: 08.03.2022

Link to Download the Order

You can view/download the order here.

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