2022 (4) TMI 1194 - HC - GST

Suppliers to Head Office cannot claim refunds under IGST s.16(3)(b) or CGST s.54(3)/Rule 89; SEZ ITC refund allowed

The HC allowed the petition and held that suppliers who invoiced common services to the petitioner's Head Office could not claim refunds under IGST ... Refund of accumulated Integrated Goods and Service - Zero Rated Supply - It is submitted that petitioner's Head Office in Mumbai has distributed proportionate input tax on the services, which were commonly used for the petitioner's Head Office, petitioner’s SEZ unit and the EOU unit - recipient of service - HELD THAT:- On the supply of common service to the petitioner’s Head office, the supplier of such common services could not have claimed any refund either under 16(3)(b) of the IGST Act, 2017 as such a supply did not qualify as a “zero rated supply” within the meaning of Section 2(23) of the IGST Act, 2017 - there is no question of the supplier claiming refund under Section 16(3)(a) or (b) of the IGST Act, 2017. The suppliers of these input service also could not have availed refund under Section 54 (3) of the Central Goods and Service Tax Act, 2017 r/w Rule 89 of Central Goods and Service Tax Rules, 2017. To avail such refund to the supplier should also have filed a declaration to that effect, incident of tax has not been passed on to the SEZ. The supplier also could not have claimed any exemption as the supply was for a common service and the invoice was raised on the petitioner’s Head Office at Mumbai - the purpose of granting refund on zero rated supply is to ensure that the exports are competitive in the international market and such transactions are not burdened with taxes. Section 54 of the Central Goods and Service Tax, 2017 allows the refund of tax and includes refund in case of zero rated supply made without payment of tax. Proviso to Section 54 (3) of the Central Goods and Service Tax Act, 2017 allows refund of unutilized input tax credit of zero-rated supplies made without payment of tax - No refund of input tax credit is allowed only if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. This is admittedly not the case here. The impugned order proceeds on the assumption that application for refund in respect of supplies to a Special Economic Zone or a Special Economic Zone Developer, can be filed only by a supplier of the goods or services in terms of second proviso to Rule 89 (1) of Central Goods and Service Tax Rules, 2017 - there is no merit in the impugned order passed by the respondent denying the benefit of refund of unutilized input tax credit of zero rated supplies effected by the petitioner. Petition allowed. Issues Involved:1. Entitlement of SEZ unit to refund of unutilized input tax credit.2. Applicability of Rule 89 of the CGST Rules, 2017.3. Interpretation of zero-rated supply under Section 16 of the IGST Act, 2017.4. Legitimacy of the refund claims based on the distribution of input tax credit by the Head Office.5. Reliance on precedents and pending appeals affecting the refund claims.Issue-wise Detailed Analysis:1. Entitlement of SEZ unit to refund of unutilized input tax credit:The petitioner, a Special Economic Zone (SEZ) unit, claimed a refund of accumulated input tax credit (ITC) for zero-rated supplies under Section 16(3)(i) of the IGST Act, 2017. The petitioner argued that the exports from its SEZ unit qualified as zero-rated supplies, making them eligible for the refund. The court acknowledged that the SEZ unit's exports were indeed zero-rated supplies, entitling the petitioner to claim the refund of unutilized ITC.2. Applicability of Rule 89 of the CGST Rules, 2017:The respondents contended that only the supplier of goods or services to an SEZ unit could file a refund claim as per Rule 89(1) of the CGST Rules, 2017. The petitioner argued that this rule was not relevant to their case. The court noted that Rule 89(1) specifies the procedure for refund claims and does not bar the SEZ unit from claiming a refund of unutilized ITC for zero-rated supplies. The court emphasized that the purpose of granting refunds for zero-rated supplies is to ensure competitiveness in international markets by reducing the tax burden on exports.3. Interpretation of zero-rated supply under Section 16 of the IGST Act, 2017:The court examined Section 16 of the IGST Act, 2017, which defines zero-rated supply and allows for the refund of unutilized ITC. The court concluded that the petitioner's SEZ unit's exports were zero-rated supplies under Section 16(1) of the IGST Act, 2017. Consequently, the petitioner was entitled to claim a refund of unutilized ITC under Section 16(3)(a) of the IGST Act, 2017.4. Legitimacy of the refund claims based on the distribution of input tax credit by the Head Office:The petitioner's Head Office in Mumbai had distributed proportionate ITC for common services used by the SEZ unit and other units. The court recognized that the Head Office acted as an Input Service Distributor (ISD) under Section 2(61) of the CGST Act, 2017, and appropriately transferred the ITC to the SEZ unit. The court found no legal impediment to the SEZ unit claiming a refund of the distributed ITC for zero-rated supplies.5. Reliance on precedents and pending appeals affecting the refund claims:The petitioner cited precedents from the Gujarat High Court and other cases to support their refund claims. The respondents argued that the cited precedents were under appeal before the Supreme Court and should not influence the current case. The court acknowledged the pending appeals but emphasized that the legal provisions and the purpose of zero-rated supply refunds supported the petitioner's claims. The court reiterated the need for fairness and reasonableness in granting refunds to ensure the competitiveness of exports.Conclusion:The court concluded that the petitioner was entitled to a refund of unutilized ITC for zero-rated supplies made by its SEZ unit. The impugned order denying the refund was found to be without merit. The court allowed the writ petition, granting the petitioner the consequential relief of the refund claim, and emphasized the importance of adhering to legal provisions to support the competitiveness of exports.