1. Hon’ble Gujarat High Court in case of Britannia Industries Ltd allowed SEZ (Special Economic Zone) to claim a refund of ITC (Input Tax Credit) received from ISD ( Input Service Distributor) Unit
1.1. It is held that assessee, situated in Special Economic Zone (SEZ), could claim a refund concerning credit of IGST distributed by Input Service Distributor (ISD) for services pertaining to SEZ unit.
2. BRIEF FACT OF THE CASE :
2.1 The petitioner, situated in Special Economic Zone (SEZ), filed an application for refund in Form GST RFD-01A concerning credit of IGST distributed by Input Service Distributor (ISD) for services pertaining to SEZ unit for the year 2018-19.
2.2 Deputy Commissioner, Central GST, rejected the claim on the ground that assessee was the only recipient of service and not the supplier of goods or services and that as per CGST supply of goods and/or services to SEZ unit was zero-rated hence were not eligible for a refund under section 54.
2.3 A show cause notice was issued by Deputy Commissioner, Central GST Mundra Division, Gandhidham with a proposal of rejection of the claim of refund of the unutilized ITC on the following grounds:
(a) The Petitioner is situated in Adani Port & SEZ and as per the CGS, the supply of Goods and/or Services to SEZ unit is Zero-rated about hence are not eligible for the refund under section 54 of the CGST Act 2017.
(b) The refund filed by the Petitioner cannot be processed under any category of refund specified under manual refund processing Circular No. 17/17/2017-GST) dated 15-11-2017 and Circular No. 24/24/2017-GST dated 21-12-2017.
(c ) SEZ unit is not supposed to pay any tax for supply received from outside SEZ and have no tax treatment for supply received from another SEZ unit and therefore there is no question of forwarded charge or reverse charge tax payment. SEZ unit is not supposed to pay any tax and thus there would be no question of ITC.
(d) Till date, no circular, notification/relevant guidelines have been issued by the board providing guidelines to process GST refund claim application of units situated in Special Economic Zones in respect of tax paid on inward supplies.
(e) Therefore in absence of any circular/notification/relevant guidelines to process GST refund claim application of units situated in SEZ, this office is unable to process the refund application
3. SEQUENCE OF EVENTS
3.1 The petitioner thereafter, during personal hearing submitted written submissions in Form-GST-RFD-09.
3.2 Deputy Commissioner, Central GST Mundra Division, however, passed an order rejecting the refund claim in GST-FORM-RFD-06 on the grounds mentioned in the show cause notice rejecting the written submissions filed by the petitioner.
3.3 The petitioner, therefore, being aggrieved has filed the petition with the prayers that the Hon’ble Court may be pleased to issue an appropriate writ ordering the respondents for the following action:-
(a) The respondents, their officers, and subordinates to act upon or grant the petitioner refund of unutilized IGST credit lying in Electronic Credit Ledger.
(b) Set aside the order of rejection of refund dated 1-8-2019 passed by the Deputy Commissioner, CGST, Mundra Division.
(c ) In case there is no rule for SEZ refund then rule(s) for granting refund of unutilized IGST credit lying in Electronic Credit Ledger be framed to bring parity in a refund under section 54 for all inverted tax structure suppliers and to remove financial hardship faced by genuine exporters like the petitioner.
4. SUBMISSION BY THE PETITIONER
4.1 The petitioner submitted that he is entitled to refund of the unutilized ITC distributed by ISD as Section 16 of the CGST Act provides for input tax credit charged on any supply of goods or/and services by the supplier which are used or intended to be used in the course or furtherance of the business of the petitioner.
4.2 He has relied upon the provisions of section 2(61) of the CGST Act which defines “Input Service Distributor” which means that an office of the supplier of goods or/and services that receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document to distribute the credit of the tax paid on the said services to a supplier of taxable goods or services. It was therefore submitted that he has received input tax credit (ITC) from ISD and is entitled to the refund being an SEZ unit.
4.3 The petitioner also referred to the notification no. 28/2012 dated 20th June 2012 clarifying the procedure for distribution of ITC by ISD and submitted that if the credit of service tax is distributed to all the units in the manner prescribed in the said notification by an ISD, then the refund of IGST credit distributed should also be refunded to the SEZ units as SEZ unit is not an excluded.
4.5 The petitioner further referred to the grounds for rejection of the refund claim and submitted that being an SEZ unit having a zero-rated supply , the refund cannot be denied under section 54 of the CGST Act because there is no express provision for rejecting the refund under the CGST Act.
4.6 It was submitted that the sole intention of section 16 of the IGST Act which provides for zero-rated supply is to avoid the cascading effect of taxation including the zero tax liability for exports and hence, the supplies made to an SEZ have been made as zero-rated supplies.
4.7 It was, therefore, submitted that the entire scheme of the 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 and section 54 of the CGST Act, the petitioner is entitled to get the refund of unutilized ITC lying in the Electronic Credit Ledger.
4.8 The petitioner thereafter relied upon the circular no. 17 dated 15th November 2017 issued by GST policy wing of Central Board of Excise and Customs to submit that unutilized ITC of IGST paid and distributed by ISD is required to be refunded after the application is filed by the petitioner in FORM-GST-RFD-01A after 14th May 2019.
4.9 It was submitted that refund being inclusive, the same is also required to be granted about unutilized input tax credit under section 54 of the CGST Act. Reliance was also placed on the decision of this Court in the case of Amit Cotton Industries v. Principal Commissioner of Customs wherein in similar facts, this Court allowed the claim made by the petitioner for a refund of the IGST in case of an export unit.
4.10 It was, therefore, submitted that in view of the aforesaid decision, the petition is required to be allowed by directing the respondents to grant the refund of ITC of Rs. 99,05,156/- lying in the Electronic Credit Ledger of the petitioner.
5. SUBMISSION BY THE RESPONDENTS
5.1 Learned Standing Counsel Mr. Ankit Shah for the respondents vehemently opposed the petition. Mr. Shah relying upon the averments made in the affidavit in reply submitted that the petitioner is not entitled to claim a refund of the IGST which was distributed by ISD.
5.2 It is submitted by the respondents that the government has offered various incentives and facilities to the units in SEZs for attracting investments into the SEZs, including foreign investment. The incentives include duty-free import/domestic procurement of goods for development, operation and maintenance of SEZ units, exemption from Central Sales Tax, exemption from Service Tax and from State sales tax which has now been subsumed into GST and supplies to SEZs are zero-rated under IGST Act, 2017
5.3 Further, the Central Government has exempted all goods or services or both imported by a unit or a developer in the Special Economic Zone, from the whole of the integrated tax leviable thereon
5.4 As per section 16 (1) (b) of Integrated Goods and Services Tax Act, 2017 supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit is considered as “Zero-rated Supply” and not eligible for Refund under section 54 of the CGST Act, 2017.
5.5 As per Rule 89(1) of the CGST Rules, 2017 in case of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the supplier of the goods or services and not by the recipient/receiver of the goods or services. Thus, the petitioner being the receiver is not eligible for a refund of ITC and Deputy Commissioner has rightly rejected the refund claim of the petitioner
5.6 It is the supplier and not the receiver who shall file the Refund application. The reason for the same is that in the case of supply to an SEZ unit (which is considered as Interstate Supply) the liability to pay tax on such supplies is on the supplier. The receiver i.e. SEZ unit is not at all liable to pay any kind of tax on such supplies received by them. Thus, the petitioner was not at all liable to pay any tax on the supplies received by them and therefore is not liable to claim a refund as per the prevalent provisions as discussed hereinabove
5.7 The Refund claimed by the petitioner cannot be processed under any of the category of eligible Refunds Specified under Manual Refund Processing Circular No. : 17/17/2017-GST dated 15-11-2017 and Circular No. : 24/24/2017-GST dated 21-12-2017 and accordingly, the refund claim is rightly rejected vide the impugned order.
5.8 It is to submit that neither any Notification nor any circular nor guidelines have been issued by the Government/Central
6. OBSERVATIONS BY GUJRAT HIGH COURT: The Hon’able court referred all the provisions of law relevant for deciding the controversy between the parties. The relevant points observed by Gujarat HC are brought out in the succeeding paragraphs.
6.1 In this case, Rule 89 would be applicable which is about the refund of the Input Tax Credit.
6.2 Rule 89 of the CGST Rules provides for the procedure for application for refund of tax, interest, penalty, fees and prescribes that in respect of supplies to an SEZ unit, the application for refund has to be filed by the supplier of goods or services.
6.3 The contention of the respondents that as the petitioner is not the supplier of the goods and services, the petitioner would not be entitled to apply for a refund is not tenable because in facts of the present case, input service distributor i.e. ISD as defined under section 2(61) of the CGST Act is an office of the supplier of goods and services which receives tax invoices issued under section 31 of the CGST Act towards the receipt of input services and issues a prescribed document to distribute the credit of CGST, SGST Or IGST paid on such goods or services.
6.4 Therefore, in the facts of the case, it is not possible for a supplier of goods and services to file a refund application to claim the refund of the input tax credit distributed by ISD.
6.5 Therefore, the stance of the department that the petitioner is not entitled to seek the refund of the ITC paid in connection with goods or services supplied to the SEZ unit is not tenable.
6.6 This aspect is further fortified by notification no. 28/2012 dated 20th June 2012 which was in connection with service tax attributable to the services used in more than one unit to be distributed pro-rata based on the turnover during the relevant period of the concerned unit to the total of the turnover of all the units and similarly, in facts of the present case also, credit of service tax is distributed to all the units by the ISD and therefore, the claim of refund made by the SEZ unit of the petitioner is required to be granted.
6.7 We are of the opinion that in view of the aforesaid decision in the case of Amit Cotton Industries (supra), the petitioner is entitled to claim a 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 the input tax credit is distributed by the input service distributor.
6.8 For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned order is quashed and set aside. The respondents are directed to process the claim of refund made by the petitioner for unutilized IGST credit lying in Electronic Credit Ledger under section 54 of the CGST Act, 2017. Such exercise shall be completed within three months from the date of receipt of the writ of this order.
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