In terms of Section 16 of IGST Act, 2017 the supply of the Goods or Services to a Unit in Special Economic Zone is a ‘Zero rated Supply’ & Supplier is entitled for Refund of accumulated ITC as there is no output Tax on his supply to SEZ Unit. However, whatever the reasons many suppliers charged the GST on their invoices to the Units in SEZ. SEZ Units also paid the GST to their vendors due to commercial expediency.
As there is no output tax for the SEZ Units on their Exports they left with the GST ITC accumulation in their books of accounts. If this GST is not refunded, this GST would become cost to SEZ Units and it is huge financial burden to SEZ Units.
Whether the SEZ Unit is eligible for refund being a exporter?
Now the question is whether the SEZ Unit is eligible for refund of GST paid to his vendors as he is also exporter of goods.
A few SEZ Units applied for refund of the GST as they are also an exporter. However, the GST authorities rejected the GST refund claims to many SEZ Units on the ground that GST Law envisages only the Supplier to SEZ unit only should come for the Refund of GST not the SEZ Units as such. Many SEZ units filed the petitions before the High Courts including Andhra Pradesh High Court challenging the decisions of GST authorities.
Decision of Madras High Court
The main contention of the SEZ Units they are also like any other exporter, they cannot be put in disadvantageous position than any other exporter. The Madras High Court in the case of M/s. Platinum Holdings (P.) Ltd Vs UOI 2021 (10) TMI 630 held that SEZ Unit in terms of Section 54 and Rule 89 of the GST Rule is entitled for the refund of GST as their procurements are Zero rated and they are also an exporter. Instead of Supplier, SEZ Unit also can come for refund of GST.
The above decision of Madras high court would help many SEZ units in Vizag and in Andhra Pradesh to get the pending GST refunds from the GST Authorities. GST authorities following judicial discipline should sanction refunds to SEZ Units. If any SEZ Unit yet to apply for GST refunds, based on this judgment they can immediately apply for the GST refunds.
(The writer is a Chartered Accountant, partner in Hiregange & Associates. He is also CMA, LL.B specialized and domain expert in Customs, Goods & Service Tax Law, Foreign Trade Policy, EOU’s and SEZ’s.)