M/S. Atc Tires Private Limited vs Joint Commissioner Of Gst & on 8 March, 2022

Judgment Summary: M/S. Atc Tires Private Limited vs Joint Commissioner Of Gst

1. Outcome
The Writ Petition was allowed. The impugned Order-in-Appeal dated 07.10.2021, which had rejected the petitioner's refund claim, was quashed. The Court directed the respondent to grant the refund of unutilized Input Tax Credit (ITC) amounting to Rs. 1,42,11,506/- for the period from April 2019 to September 2019.

2. Core Issue
The central legal question was whether a Special Economic Zone (SEZ) unit is entitled to claim a refund of unutilized Input Tax Credit (ITC) on common input services, when such credit has been distributed to it by its Head Office acting as an Input Service Distributor (ISD), in respect of its zero-rated exports.

The department contended that as per the proviso to Rule 89(1) of the CGST Rules, 2017, only the supplier of services to an SEZ unit can claim a refund, not the SEZ unit itself as the recipient.

3. Key Facts
* The petitioner, M/s. ATC Tires Private Limited, operates an SEZ unit in Tirunelveli, which is engaged in the manufacture and export of goods. This constitutes a "zero-rated supply".
* The petitioner's Head Office (HO) in Mumbai procured certain common input services used by the HO, the SEZ unit, and another EOU unit in Gujarat.
* The Mumbai HO is registered as an Input Service Distributor (ISD) and distributed the proportionate ITC on these common services to the petitioner's SEZ unit.
* The petitioner filed six refund claims for the period April 2019 to September 2019, seeking a refund of this unutilized ITC under Section 54(3) of the CGST Act, as it was attributable to their zero-rated exports made without payment of IGST.
* The refund was rejected by the Assistant Commissioner, and this rejection was upheld by the Joint Commissioner (Appeals), leading to the present writ petition.

4. Arguments
* Petitioner (M/s. ATC Tires Private Limited):
* Exports from an SEZ unit are classified as "zero-rated supplies" under Section 16 of the IGST Act, 2017.
* As per Section 16(3)(a) of the IGST Act, a registered person making zero-rated supplies without payment of tax is eligible to claim a refund of unutilized ITC.
* The ISD mechanism is a legally prescribed method for distributing common input service credit to various units of the same entity.
* The department's reliance on the second proviso to Rule 89(1) of the CGST Rules is misplaced. That proviso applies when a DTA supplier provides goods/services to an SEZ and wishes to claim a refund. It does not bar the SEZ unit itself from claiming a refund on its own zero-rated outward supplies (i.e., exports).
* The legislative intent is to make exports competitive by not burdening them with taxes, and denying this refund defeats that purpose.
* The department had granted a similar refund for a prior period (October 2017 to March 2019).

• Respondents (GST Department):
  • The primary argument rested on a strict interpretation of the second proviso to Rule 89(1) of the CGST Rules, 2017.
  • They argued that this proviso explicitly states that in respect of supplies to an SEZ unit, the application for refund shall be filed by the supplier of goods or services.
  • Since the petitioner is the recipient of the input services (distributed via ISD), they are not eligible to file the refund claim.
  • The prior period refund was granted based on a High Court judgment that is currently under appeal before the Supreme Court, and the department has also appealed that specific refund order.

5. Court’s Reasoning
The High Court found the department's interpretation to be flawed and contrary to the fundamental principles of GST law concerning exports.
* Substantive Right vs. Procedural Rule: The Court held that the petitioner's eligibility for a refund is a substantive right granted by the primary statutes—Section 16 of the IGST Act and Section 54 of the CGST Act. A procedural rule, like Rule 89, cannot be interpreted in a way that defeats this substantive right.
* Purpose of Zero-Rating: The very purpose of granting refunds for zero-rated supplies is to make exports competitive in the international market by ensuring they are free from domestic taxes. Denying the refund would frustrate this legislative intent.
* Correct Interpretation of Rule 89(1) Proviso: The Court clarified that the proviso to Rule 89(1) is an enabling provision for the supplier to an SEZ. It provides an option for that supplier to claim a refund. It does not, however, create an absolute bar on the SEZ unit itself from claiming a refund of unutilized ITC pertaining to its own zero-rated supplies (exports), a right which flows directly from Section 16(3)(a) of the IGST Act and Section 54(3) of the CGST Act.
* Absence of Double Benefit: The supplier of the original common service to the Head Office could not have claimed a refund, as it was not a zero-rated supply at that stage. Therefore, allowing the petitioner's claim does not result in a double benefit.
* Fairness and Reasonableness: Citing the Supreme Court in Unichem Laboratory, the Court stated that tax authorities have a duty to act reasonably and fairly and not deprive an assessee of a benefit available to them in law merely to augment revenue.

6. Statutory References
* IGST Act, 2017: Section 2(23), Section 16(1), Section 16(3), Section 16(3)(a).
* CGST Act, 2017: Section 2(61) (Input Service Distributor), Section 54 (Refund of tax), Section 54(3).
* CGST Rules, 2017: Rule 89, specifically the second proviso to Rule 89(1).
* Constitution of India: Article 226.

7. Precedents Cited
* Cited by Petitioner:
* Britannia Industries Limited vs. Union of India [2020 (42) GSTL 3 (Guj.)]
* IPCA Laboratories Ltd. vs. Commissioner [2022-VIL-136-Guj]
* Platinum Holdings Private Limited vs. Additional Commissioner of GST (Madras HC) [2021 (10) TMI 630]
* Cited by Respondents (in the impugned order):
* M/s. Punjable Tractors Ltd. [2005 (181) ELT 380 (SC)]
* Cited by the Court:
* Unichem Laboratory Vs Collector of Central Excise, Bombay [2002 (145) ELT 502 (SC)]