Brief Facts
The appellant is a unit operating in the Special Economic Zone (SEZ). It is engaged in export of goods. It availed input tax credit (ITC) on inward supplies from entities in the Domestic Tariff Area (DTA).
Issue
The SEZ unit applied for refund of un-utilised ITC. Such accumulation arose on account of export of goods. The assessing authority rejected the refund claim.
Provisions in Law
According to Section 54(3) of the CGST Act, refund of unutilised ITC is allowed in case of zero-rated supplies (viz., exports) made without payment of GST. The said sub-section does not distinguish between SEZ and non-SEZ applicants.
However, according to the second proviso to Rule 89(1) of CGST Rules, the application for refund “shall” be filed by the supplier of goods / services in respect of supplies to a SEZ unit / SEZ developer.
Further, as per Rule 89(2)(f) ibid, such refund application shall be accompanied by a declaration that GST has not been collected from the SEZ unit / SEZ developer, where the refund is on account of supply of goods / services to a SEZ unit / SEZ developer.
Order
[By the Appellate Authority – GST (Andhra Pradesh)] [1] It is evident from a conjoint reading of the above provisions that GST law facilitates refund claim to the ‘suppliers to SEZ units’ (viz., those located in DTA) with payment of GST. Hence, SEZ units / developers cannot claim refund of unutilised ITC on inward supplies from the DTA.
[1] Order No. 4990 of 2020
Comments
The law, in theory and practice, allows supplies to SEZ units either with or without payment of GST. For supplies with payment of GST, the tax component is paid by the supplier (located in the DTA) to the Government from its pocket. Thereafter, the supplier can apply for refund. There is no provision for suppliers located in DTA to pass on ITC to recipient(s) located in SEZ.
At this juncture, it is interesting to recall the judgment[1] of the Hon’ble High Court of Gujarat, which is distinguishable on facts. Therein, SEZ unit was permitted to claim refund of IGST distributed by Input Service Distributor (ISD) since no specific supplier can claim refund under the GST Act / Rules.
[1] R/Special Civil Application No. 15473 of 2019
