M/S Britannia Industries Limited vs Union Of India on 11 March, 2020

Judgment Summary: M/S Britannia Industries Limited vs Union Of India

1. Outcome

The writ petition was allowed. The High Court quashed and set aside the rejection order dated 01.08.2019. It directed the respondents to process the petitioner's refund claim for unutilized IGST credit of ₹99,05,156 lying in its Electronic Credit Ledger, and to complete the process within three months.

2. Core Issue

Whether a Special Economic Zone (SEZ) unit is entitled to claim a refund of unutilized Integrated Goods and Services Tax (IGST) credit that has been distributed to it by an Input Service Distributor (ISD), especially when the GST law stipulates that the supplier to an SEZ unit should file the refund claim.

3. Key Facts

• Petitioner: M/s Britannia Industries Limited, a unit located in a Special Economic Zone (SEZ).
• Nature of Supply: Being an SEZ unit, its supplies are categorized as "zero-rated supplies."
• Credit Accumulation: The petitioner had an unutilized Input Tax Credit (ITC) of IGST amounting to ₹99,05,156 in its Electronic Credit Ledger for the financial year 2018-2019. This credit was not on direct inward supplies but was distributed to the SEZ unit by its head office, acting as an Input Service Distributor (ISD).
• Refund Application: The petitioner filed a refund application (Form GST RFD-01A) to claim this unutilized ITC.
• Rejection of Claim: The Deputy Commissioner, CGST, rejected the refund claim primarily on the grounds that under GST law, only the supplier to an SEZ unit can claim a refund, not the SEZ unit (recipient) itself. Further, it was stated that no procedural guidelines exist for such a refund.

4. Arguments

Petitioner's Arguments (Britannia Industries Ltd.):

• The purpose of zero-rating supplies to SEZs under Section 16 of the IGST Act is to make exports tax-free and avoid the burden of taxes. Denying a refund of accumulated ITC defeats this legislative intent.
• Since the IGST credit was distributed by an ISD (an office of the same company), it is impossible for any external "supplier" to file a refund claim for this amount.
• The entire GST scheme, on a conjoint reading of Section 16 of the IGST Act and Section 54 of the CGST Act, allows for the refund of unutilized credit accumulated on account of zero-rated supplies.
• The situation is analogous to the one in M/s. Amit Cotton Industries, where the court prioritized the substantive right to refund over procedural difficulties.

Respondent's Arguments (Union of India):

• Alternative Remedy: The petition is not maintainable as the petitioner has an alternative statutory remedy of filing an appeal under Section 107 of the CGST Act.
• Statutory Bar: Rule 89(1) of the CGST Rules, 2017, explicitly states that for supplies made to an SEZ unit, the refund application must be filed by the supplier of goods or services, not the recipient (the SEZ unit).
• Eligibility: Section 16(3) of the IGST Act provides refund options only to the "registered person making zero-rated supply" (i.e., the supplier), not the recipient.
• Lack of Procedure: There are no notifications, circulars, or guidelines issued by the government to process refund claims of ITC filed by SEZ units themselves for inward supplies.

5. Court’s Reasoning

• The Court acknowledged the respondent's argument based on a literal interpretation of Rule 89(1) of the CGST Rules. However, it delved deeper into the specific facts involving an ISD.
• The Court noted that an ISD, as defined under Section 2(61) of the CGST Act, is an office of the supplier that receives tax invoices for common input services and distributes the credit to other units of the same legal entity (having the same PAN).
• In this specific context, there is no third-party "supplier" who could file the refund claim for the credit distributed by the ISD. The distributor (ISD) and the recipient (SEZ unit) are part of the same entity.
• Therefore, the Court found the department's stance that only a supplier can claim the refund to be untenable and impractical in an ISD scenario. To insist on this would render the credit useless and defeat the purpose of the law.
• Relying heavily on the precedent set in M/s. Amit Cotton Industries, the Court held that a substantive right to a refund, which is a core principle of zero-rating, cannot be denied due to procedural gaps or a rigid interpretation of rules that do not account for specific business models like the ISD mechanism.
• The Court concluded that since no specific supplier can claim the refund in this case, the petitioner (the SEZ unit) is entitled to claim the refund of IGST credit lying unutilized in its Electronic Credit Ledger.

6. Statutory References

• Constitution of India: Article 226
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 2(61): Definition of "Input Service Distributor"
  • Section 16: Eligibility and conditions for taking ITC
  • Section 31: Tax Invoice
  • Section 54: Refund of tax
  • Section 107: Appeals to Appellate Authority
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Section 16: Zero-rated supply
• Central Goods and Services Tax Rules, 2017 (CGST Rules):
  • Rule 89: Application for refund of tax
  • Rule 96: Refund of integrated tax paid on goods or services exported out of India

7. Precedents Cited

• M/s. Amit Cotton Industries vs. Principal Commissioner of Customs (Gujarat HC): This was the cornerstone of the Court's reasoning, establishing the principle that a substantive right to refund for zero-rated supplies cannot be denied due to procedural complexities or the lack of enabling provisions in the system.
• M/s Stromtek Automation P. Ltd. vs. Addi. Commr. of GST & C. Ex. Chennai (Madras HC): Cited by the respondents to argue for dismissal of the writ petition due to the availability of an alternative remedy.
• Commissioner of Central Excise, Bolpur vs. Ratan Melting and Wire Industries (Supreme Court): Cited within the Amit Cotton judgment to hold that departmental circulars cannot override statutory provisions.
• J.K.Lakshmi Cement Limited vs. Commercial Tax Officer, Pali (Supreme Court): Also cited within the Amit Cotton judgment on the nature and applicability of circulars.