HIGH COURT OF GUJARAT AT AHMEDABAD
M/s Britannia Industries Ltd. v. Union of India
C/SCA/15473 of 2019 | 11.03.2020
Facts
The Petitioner, having a unit situated in Special Economic Zone (for short “SEZ”), filed an application for refund in Form GST RFD-01A with regard to the credit of Integrated Goods and Services Tax (for short “IGST”) distributed by Input Service Distributor (for short “ISD”) for services related to the SEZ unit, amounting to Rs.99,05,156/- for the year 2018-2019.
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 refund.
The Deputy Commissioner, Central GST Mundra Division, Gandhidham (hereinafter referred to as “Respondent”) issued a Show Cause Notice dated 02.07.2019 with a proposal to reject the claim of refund on the grounds that the Petitioner, being situated in SEZ unit, received zero rated supply of goods and services and there is no provision under Section 54 of the the Central Goods and Services Act, 2017 (hereinafter referred to as “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 dated 23.07.2019, however an order dated 01.08.2019 was passed by the Respondent rejecting the refund.
Aggrieved by the order of the Respondent dated 01.08.2019, the Petitioner approached the High Court under Article 226 of the Constitution of India to issue a writ of mandamus to direct the Respondent to grant the said refund, set aside the order of rejection of refund.
Issue before the High Court
Whether the Petitioner, being an SEZ unit, can claim refund of unutilized IGST credit lying in Electronic Credit Ledger under section 54 of the CGST Act, 2017?
Concluding View
The High Court 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 refund of input tax credit distributed by the ISD.
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 SEZ unit is not tenable.”
The Court placed reliance on Notification No. 28/2012, dated 20.06.2012 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.
In view of the facts of the present case, the Court observed that the ISD has distributed credit of service tax to all units, thereby making the Petitioner’s claim of refund valid.
The Court observed that:
“22. …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.”
The Court heavily relied on the decision of M/s Amit Cotton Industries v. Principal Commissioner of Customs, SCA No.20126/2018 and referred the aspects of refund therein, wherein the Petitioner’s claim for refund of IGST concerning an export unit was allowed. However, Court held that in the present case Rule 89 of the Rules will be applicable unlike that Amit supra wherein Rule 96 was applicable.
Relying on the aforesaid judgment, the Court further concluded that a specific supplier does not exist who is entitled to claim refund on the input tax credit as per the provisions under CGST Act and Rules, owing to the fact that the input tax is distributed by the ISD and hence, the petitioner itself is entitled to claim the said refund.
Thus, the Court held as under:
“23. We are of the opinion that in view of the aforesaid decision in case of M/s. Amit Cotton Industries (supra), the petitioner is entitled to claim 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.”
Therefore, the High Court allowed the writ petition and quashed the impugned order passed by the Respondent. Further, 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.
AMLEGALS Remarks
The Court has appreciated the concept of ISD under Section 2(61) of the Act at the first place. It further went on to deal with Section 16 of IGST Act, Rule 89 of CGST Rules and Section 54 of the Act per se.
The Court also appreciated that if Section 54 is not applicable to such a situation then it will become redundant as was originally argued by Mr. Anandaday Mishra, Founder & Managing Partner, AMLEGALS, who represented the Petitioner in the High Court.
The High Court also went on to discard the plea of Respondent on alternative remedy as the writ was directly filed against an O.I.O passed by learned Deputy Commissioner.
This will bring a big relief as this order will clear the backlog of refunds filed by SEZ in entire India in as much as the GST tax regime is new and such issues need to be cleared at an early stage otherwise the entire trade will face the hardship.
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FULL TEXT OF THE HIGH COURT ORDER