SEZ unit can claim refund of ITC distributed by ISD unit

SEZ unit can claim refund of ITC distributed by ISD unit

The Gujarat High Court allowed Britannia Industries to petition for a claim of refund of Input Tax Credit (ITC) distributed by Input Service Distributor (ISD) u/s 54 of the CGST Act.

The Petitioner, having a unit situated in Special Economic Zone (SEZ), filed an application for refund in Form GST RFD-01A with regard to the credit of Integrated Goods and Services Tax (IGST) distributed by ISD for services related to the SEZ unit.

The Petitioner was making zero rated supplies under the GST and was not able to utilize the credit of Input Tax Credit of IGST from its ISD, which was lying unutilized in the Petitioner’s electronic credit ledger. Thus, the Petitioner made an application to claim such a refund.

The Deputy Commissioner, Central GST issued a Show Cause Notice with a proposal to reject the claim of refund on the grounds that the Petitioner, being situated in the SEZ unit, received a zero-rated supply of goods and services and there is no provision u/s 54 of the CGST Act.

The notice also contended that there is no circular, notification or guidelines issued ever by the Board to process GST refund claim application of SEZ units.

The Petitioner filed the written submissions in personal hearing, however an order was passed by the Respondent rejecting the refund. The issue raised in this case was whether the Petitioner, being an SEZ unit, can claim a refund of unutilized IGST credit lying in Electronic Credit Ledger under section 54 of the CGST Act, 2017.

The Court placed reliance on Notification No. 28/2012, dated June 20, 2012, which clarified the procedure for distribution of Input Tax Credit by ISD. As per the notification, the service tax attributable to services in use in more than one unit shall be distributed on a pro-rata basis of the turnover during the relevant period of the unit in question to the sum total turnover of all the units.

The division bench observed that as per the definition of ISD under Section 2(61) of the CGST Act and the facts of the present case, it is not possible for a supplier of goods and services to file a refund application to claim a refund of input tax credit distributed by the ISD.

The Court noted that the ISD has distributed credit of service tax to all units, thereby making the Petitioner’s claim of refund valid. Therefore, the Court held that 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.

The Court ordered the Respondents to process the Petitioner’s claim within 3 months, for refund of unutilized IGST credit lying in Electronic Credit Ledger under Section 54 of the CGST Act.

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