Reliance SEZ Unit Can Claim Refund Of Unused GST Credit Distributed By ISD, Tribunal Upholds Refund Orders

Reliance Industries Ltd., an SEZ unit, sought refunds of balances of unutilised input tax credit (ITC) in its electronic credit ledger.

The credits included amounts distributed by its Input Service Distributor (ISD) and, in some instances, tax paid on inward supplies.

The claims were filed under the “any other” category, relying on the Gujarat High Court’s decision in IPCA Laboratories Ltd.

The refund sanctioning authority rejected the claims, and the first appellate authority allowed the assessee’s appeals.

The Revenue appealed against the resulting orders, arguing that the GST legislation did not permit the SEZ recipient to claim the refunds.

Section 54(1) of the CGST Act permits a person to apply for refund of tax, interest or other amounts paid, while Section 54(3) governs refunds of unutilised ITC and generally limits them to specified cases, including zero-rated supplies made without payment of tax.

Rule 89(1) provides the refund application procedure and states that, in respect of supplies to an SEZ, the supplier is to file the application; Rule 89(4) prescribes the formula for refund of ITC relating to zero-rated supplies.

The Tribunal applied the Gujarat High Court’s decisions in Britannia Industries Ltd. and IPCA Laboratories Ltd., which held that an SEZ unit could claim a refund of ITC distributed by an ISD where the supplier could not claim it, and relied also on Amit Cotton Industries.

It further considered the Madras High Court decisions in Platinum Holdings, Urjita Electronics and McKinsey Global Services, which supported refund eligibility for SEZ units.

The Tribunal treated the relevant High Court decisions as binding in the absence of any stay or reversal.

The Tribunal found that the refund applications and the first appellate order characterised the claims as refunds of unutilised ITC, including credit distributed by the ISD; the assessee’s later characterisation of the claims as refunds of excess tax paid was not supported by documentary evidence or law.

It therefore addressed whether the SEZ unit could claim the unutilised ISD credit.

Applying IPCA Laboratories and Britannia Industries, it concluded that the supplier-refund procedure could not bar the SEZ recipient where the credit had been distributed through an ISD and no specific supplier could claim the refund.

The Revenue’s reliance on the refund rules and Board circulars did not displace that conclusion: the circulars dealt with manual processing procedures and did not restrict the substantive right to claim a refund.

The Tribunal also noted that the cited High Court judgments had not been shown to be stayed or reversed.

It affirmed the orders of the first appellate authority and dismissed all eight Revenue appeals.