India recently achieved a phenomenal milestone when the value of goods exported touched $ 418 Billion. One which assisted in achieving this incredible milestone is the Special Economic Zone(s) (SEZs). The Governments have branched out various fiscal benefits to the SEZs, including benefits under the GST Act.
To briefly summarize Inward and outward supplies to/by SEZ Units
A. On the Inward side- Supplies are treated as zero-rated supplies giving the supplier the option to
(1) either pay tax and seek a refund or
(2) supplies without charging any tax.
B. On the output side- exports by SEZ Units are Zero-rated and domestic supply of goods attract a levy of BCD and IGST which the buyer has to pay while clearing goods from the SEZ.
Although the object of the Government has been to provide Zero rated benefits to the SEZ for goods or services procured by them, although some of supplies of goods or services are led to ITC accumulation in the hands of the SEZ Units.
Some of these supplies are –
1. Goods/ Services procured for the purpose other than authorized operation – On many occasions custom officer ask SEZ unit to furnish proof that goods or services procured are for the authorized operation or not like goods procured for canteen, repair & maintenance of building etc. or service procured like housekeeping services, insurance services etc.
2. In few cases, the Suppliers, for commercial reasons, do not opt for Zero rating benefit.
3. Credit distributed by Input Service Distributor
For the above-mentioned supplies accumulation of credit is lies in the electronic credit ledger of SEZ Units. SEZ Units end up with an accumulation of credit. To liquidate such credits, the SEZ units have sought refund of such accumulated ITC.
The Department in many cases has rejected such refund claims on the grounds that the option to claim refund for Zero Rating supplies exists only with the Supplier of the goods or services. “The SEZ Unit cannot claim such a benefit. To put it differently, it is the Department’s argument that all inward supplies of goods/services shall be made by the SEZ units without payment of tax and there can be no ITC accumulation in the hands of the SEZ unit.”
In the year 2021 Hon’ble Madras High Court in the case of Platinum Holdings Ltd. Vs. Additional Commissioner of CGST & Central Excise
“Held: Ordinarily, though zero rated supplies are not subject to the levy of taxes, the petitioner, in this case has remitted the same as raised in the invoice, albeit erroneously -The provisions of Section 54 of the CGST Act, providing for a refund, apply to any person who claims such refund and who makes an application for the grant of the same – The language of the provision is clear and does not contain, or admit of any restriction in its operation – Statutory scheme for refund admits of applications to be filed by any entity that believes that it is so entitled, including the petitioner SEZ – The language of Rule 89, echoes that of Section 54, and both the aforesaid provisions and Rule commence with the phrase ‘any person’ – Contention of Counsel for Revenue that Rule 89, particularly, the second proviso thereto, as well as Clause (f) of sub-Rule 2, refers to an application filed by a supplier to a SEZ and, therefore, the reference to a supplier, will exclude, by virtue of such reference, other applicants, is not agreeable – On a combined reading of Section 54 and Rule 89, the restriction which has been read into the provision by the Revenue is misplaced – It is a settled position that there can be no insertion of a word or phrase in a statutory provision or in a Rule which must be read and applied, as framed – No restrictions or amplifications of the Rule are permissible by interpretation – On the legal issue of entitlement to refund, Bench holds in favor of the petitioner “
– Copy of order attached.
Filing refund claims to liquidate the credit is the last option left with the SEZ units. Where such refund applications are not entertained by the Department, the SEZ units can seek relief from High-Court by filing Writ.
Other Case Law and references
1. M/s. ATC Tires Pvt. Ltd. Vs. Joint Commissioner of GST & CE
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