March 7, 20230

The Gujarat High Court in M/S SE Forge Limited v. . Union of India [Special Application No.16056 of 2022 decided on 03.02.2023] held that a SEZ Unit, is entitled to claim the refund of IGST credit lying unutilized in the Electronic Credit Ledger.


M/S SE Forge Limited (herein referred to as the “ Petitioner”) is a Social Economic Zone (hereinafter referred to as the SEZ) unit engaged in manufacturing of engineering components,  tower flanges, bearing rings, and technical components for the other industry. It is involved in the export of goods under Letter of Undertaking (hereinafter referred to as the LUT) from the SEZ unit and has been granted authorization to operate as a Special Economic Zone in Vadodara, Gujarat.

 The Petitioner purchased goods from non-SEZ suppliers, wherein,  Integrated Goods and Services Tax (hereinafter referred to as the IGST) was levied by some suppliers. As the Petitioner is a SEZ unit, it was unable to utilise the credit available in the Electronic Credit Ledger.

The Petitioner filed a refund application for the months of September 2018 to December 2019 for an amount of Rs. 8,88,079/- for the unutilized Input Tax Credit (hereinafter referred to as the “ITC) vide Form GST RFD-01 on 28.09.2020. The refund was sought under the head ‘Export of Goods/Services without payment of tax’ and the application was moved under Section 54(3) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act) and Rule 89(4) of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the CGST Rules).

The Assistant Commissioner (hereinafter referred to as the Respondent No.3) issued a Show Cause Notice (hereinafter referred to as the SCN) on 28.10.2020 to which the Petitioner filed its reply. The Respondent No. 3 rejected the refund claim vide Order dated 23.11.2020.

The Petitioner preferred an appeal before the Commissioner, CGST and Central Excise (Appeals), Vadodara (hereinafter referred to as the Respondent No.2), which was also rejected vide Order dated 03.02.2021.

The Petitioner filed another refund application on 12.03.2022 for the period of January 2020 to November 2021 amounting to Rs.22,64,582/- for which provisional refund order was issued on 27.03.2022 for refund of Rs.18,11,665/- The Respondent No.3 again issued SCN on 28.04.2022 stating that the refund was erroneously granted. The Respondent No.3 rejected the refund of ITC and further directed the recovery of the provisionally sanctioned refund amount.

The Petitioner, aggrieved by the rejection of the refund of ITC by the Respondent No.3 and Respondent No.2, filed the present petition.


Whether SEZ unit is entitled to claim refund of unutilized ITC?


Mr. Anandodaya Mishra, on behalf of the Petitioner,  submitted that the Respondent No.2 had erred in holding that Section 54(3) of the CGST Act read with Rule 89(1) and Rule 89(2)(f) of the CGST Rules mandates only supplier to claim refund of ITC.

It was contended that the CGST Act does not make any distinction between a SEZ Unit and other registered persons for the eligibility of ITC. Moreover, the GST scheme does not deny refund of ITC  to a SEZ under Section 54 of the CGST Act.

The Respondents contended  that the Petitioner purchased goods from the Domestic Tariff Area (hereinafter referred to as the DTA) unit and had claimed the refund of the ITC, which was rejected after following the principles of natural justice.

It was further submitted that the Section 2(19) of the IGST Act provided that the SEZ shall have the meaning as assigned under Section 2(za) of the Special Economic Zone Act, 2005 (hereinafter referred to as the SEZ Act). Moreover, the conjoint reading of the provisions of Section 54(3) of the CGST Act, Section 16 of the IGST Act and Rule 89(1) of the CGST Rules, when the supply is made to SEZ unit or developer, the supplier shall file the refund application.

It was argued that the online portals were developed for smooth processing of refunds and the procedure was laid down under Section 16 of the IGST Act, and the portal auto populates the credit in the ITC Ledger of Credit  of the SEZ recipient.

It was further argued that the ITC of IGST distributed by the Input Service Distributor (hereinafter referred to as the ISD)  cannot be compared with a sole SEZ unit. Moreover, the SEZ unit is required to recover the amount paid as taxes to the suppliers as under the GST regime, the SEZ units are not required to pay tax.


The High Court observed that the supply to SEZ is considered to be zero-rated supply under Section 16 of IGST Act and hence, the supplier is exempted from the IGST. The Court further observed that the refund of ITC was not claimed by the supplier and hence, the Petitioner is eligible to claim the refund. The Court relied on M/s. Britannia Industries v. Union of India [Special Civil Application No. 15473 of 2019] and held that the Petitioner was eligible to seek refund of ITC paid in connection of the goods and services supplied to the SEZ unit.

The High Court further relied on M/s. IPCA Laboratories v. Commissioner [Special Civil Application No. 638 of 2021] and allowed the refund of ITC to the Petitioner, with the condition  that in case the supplier further claimed the refund of ITC, the Petitioner would compensate the amount.

The High Court set aside the orders of Respondent No.2 and Respondent No.3 and granted the refund of ITC to the Petitioner. The Court laid down the condition that if the Department notices that the refund of ITC is already claimed by the suppliers, it would be recovered from the Petitioner along with interest within 8 weeks. The Petition was consequently disposed of.


The Gujarat High Court upheld that the Section 54 of the CGST Act read with Rule 89 of the CGST Rules does not differentiate or distinguish for the refund of ITC to SEZ unit as compared to other registered taxpayers.  Moreover, the legislative intent of any taxation statute is to generate revenue and provide ease of doing business, hence, the department cannot deny refund to SEZ unit by stating that merely the suppliers are eligible for refund of ITC for the supply of goods and services to SEZ unit.

The High Court further quashed and set aside the orders of rejection of refund of ITC as it was beyond the provisions of law and allowed the refund of unutilized ITC.

The present case, was originally argued by Mr. Anandaday Mishra, Founder & Managing Partner, AMLEGALS, who represented the Petitioner in the matter.


For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com.

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