SEZ units can claim refunds of ISD credit tied to their own exports, tribunal rules

The Visakhapatnam GST appellate tribunal says a restriction on suppliers’ refunds for direct SEZ supplies does not bar units from claiming eligible credit linked to their own exports.

A GST appellate tribunal in Visakhapatnam has held that an SEZ unit may seek a refund of unutilised input tax credit distributed through an input service distributor when that credit relates to its own exports, drawing a sharp distinction between that situation and a supplier’s refund claim on a direct supply to a special economic zone.

The case involved Maithan Alloys Limited, which had sought refunds of credit accumulated on zero-rated exports made without payment of integrated tax. The tribunal said the legal framework under Section 16 of the IGST Act treats exports and supplies to an SEZ unit or developer as separate forms of zero-rated supply, and that distinction matters when applying the refund rules under the CGST Act and Rule 89. In the tribunal’s view, an SEZ unit is not barred merely because of its status from claiming refund of eligible credit traceable to its own exports.

The Revenue had argued that the proviso to Rule 89(1), which governs refund applications for supplies made to an SEZ, meant the supplier alone could pursue such a claim. But the tribunal said that reading was too broad. According to its reasoning, that proviso deals with refund claims arising from direct supplies to an SEZ, not with a recipient’s later claim for accumulated credit lawfully distributed through an input service distributor. The tribunal said a procedural provision should not be stretched to defeat a substantive refund right where the restriction does not actually apply.

To support that view, the tribunal relied on decisions of the Gujarat High Court in Britannia Industries and SE Forge, and on a Madras High Court ruling in Wipro. Those decisions had recognised that SEZ units can, in the right circumstances, pursue refund of unutilised credit linked to exports. The tribunal’s approach is consistent with CBIC guidance describing SEZ supplies and exports as zero-rated transactions, albeit through different refund routes depending on how the supply is structured.

The tribunal also rejected an allegation that the refunds would amount to a double benefit because suppliers had supposedly already claimed the same credit. It said that assertion was not properly put to Maithan Alloys, was unsupported by evidence and could not be relied upon on appeal. Even if a supplier had filed a refund claim, that would not prove the claim was sanctioned or that it covered the same invoices or credit. The tribunal said the law may justify scrutiny for possible double refunding, but rejection requires proof, not suspicion.

It further held that the first appellate authority had breached natural justice by relying on a point that had not been raised before the taxpayer without giving it a chance to answer. Referring to established principles of audi alteram partem, the tribunal said a decision based on undisclosed material or an unannounced ground cannot stand where the affected party was not given notice and a real opportunity to respond. On that basis, it found the earlier order unsustainable.