Gujarat High Court Directs Refund Of IGST In Electronic Credit Ledger For SEZ Unit U/S 54 Of CGST Act, 2017

The aforesaid ruling was made in a writ application seeking directions to Respondents to initiate a refund of Input Tax Credit ('ITC') on inward supply charged by the supplier and utilised IGST credit distributed by Input Service Distributor ('ISD') and lying in the Electronic Credit Ledger.

The Applicant was pharmaceutical company and one of its manufacturing facilities was located in the SEZ Kandla (Special Economic Zone). The Applicant was also authorised to operate as an SEZ at Kandla, Kutch wherein it was engaged in the export of goods under the Letter of Undertaking from the SEZ unit. In the 2017-18 year, it accumulated ITC worth INR 21,66,887. This ITC was received by the Applicant basis the integrated tax from its ISD and ITC inward supply charged by the supplier as permissible under the law.

The Applicant contended that because it is an SEZ Unit which was making Zero Rated Supplies under the GST Act, the Applicant did not utilise the credit which was lying unutilised in the Electronic Credit Ledger. When it filed a refund application, a show cause notice was issued on the grounds:

1. The Applicant, situated in Kandla SEZ as per CGST Act where the supply of goods/services to SEZ unit were Zero Rated, hence, the Applicant was not eligible for a refund under Section 54 of the CGST Act.
2. The refund filed by the Applicant could not be processed under any category of refund under the manual refund processing circulator of 2017.
3. Further, for the supply received from SEZ, the unit was not supposed to pay any tax whether under forward charge or reverse charge mechanism. Contrastingly, for the supply received from another unit within SEZ, there was no tax treatment and hence, the question of forwarded charge or reverse tax payment did not arise.
4. No circular or notification or guidelines had been issued by the Board for processing GST refund claim applications of units situated in SEZs regarding tax paid on inward supplies.

Consequently, the refund claim of INR 21, 66, 867 was rejected under Section 54 of the Act.

The Bench primarily averred that the writ application was no longer res integra in view of the judgement in M/S Britannia Industries Ltd vs UOI. The M/S Britannia judgement was based on M/S Amit Cotton Industries vs Principal Commissioner of Customs [SCA No. 20126 of 2018], as well.

Keeping these precedents in mind, the Bench remarked:

"In view of the aforesaid, the writ applicant could be said to be entitled to claim the 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 Bench accordingly directed the processing of refund claim within a period of three weeks and the application was allowed.

Case Title: M/S. Ipca Laboratories Ltd vs Commissioner

Case No.: C/SCA/638/2021

Click Here To Read/Download Order