Every taxpayer making payment of taxes to the Government on their purchases is knocked off while making the outward supply. A taxpayer must bear the tax liability on the value addition made by him, at each stage. But sometimes supply is made to some special persons for authorized operations only, which is considered as Zero-rated and Inter-State supply under GST. These special persons are called SEZ Units/Developers. These SEZ Units/Developers are in the same country but they are considered to be located in a foreign territory. They have both the options to make outward supplies (other than DTA) with/without payment of tax.
If they opt for the option to pay IGST on their outward supplies, it will lead to blockage of their working capital as there is the absence of any inward liability to be adjusted. In such a scenario, the word” Refund” acts as a helping hand to their drenching working capital. Getting a refund of the taxes provides a new boost to the taxpayer as it keeps their working capital intact.
A claim for refund may arise on account of: –
- Refund of any unutilized input tax credit at the end of any tax period
- Payment of integrated tax on Zero Rated supply and claim refund of such tax paid.
An SEZ developer or SEZ unit may supply goods or services or both on payment of integrated tax and claim a refund of such tax paid on goods or services or both supplied under the provisions of section 54 of the CGST act.
Eligibility of Refund for the supply of goods or services or both made to SEZ Units/Developers
- Where Supply has been made without payment of IGST
In case, a supply of goods/ services is made without payment of IGST under bond or LUT, the supplier shall be eligible to claim a refund of its unutilized ITC and while filing refund application in FORM GST RFD-01, the supplier needs to furnish a declaration that tax has not been collected from the SEZ unit or the SEZ developer.
- Where Supply has been made with payment of IGST
In case, a supply of goods/ services is made with payment of IGST, then the supplier shall be eligible to claim the refund of IGST paid by him and the question of refund in the hands of SEZ will not arise since the burden of tax has been borne by the supplier.
Moreover, a refund shall not be available for SEZ developer, in a case where the supplier has made a supply of goods/services with payment of IGST and the burden of tax has been borne by the SEZ unit. Firstly, SEZ is not eligible to avail the ITC & secondly, he cannot apply for a refund of the ITC availed as there is no provision in GST to claim a refund of un-availed ITC by SEZ unit. These facts were similar to the judgment of In Re: Vaachi International Pvt. Ltd. Order No. 4990 of 2020 dated February 10, 2020.
Thus, SEZ units or SEZ developers shall not claim any refund against the ITC involved in supplies received by them from non-SEZ suppliers. The act facilitates the eligibility for a refund to be claimed by the suppliers who have made supplies to SEZ units/developers with payment of tax. But the acrimonious truth is that claiming the refund of taxes has been a tedious process & often the taxpayers complain about the numerous requirements for getting the refund. Thus, there is a need of an hour to simply the process of claiming a refund.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
Posted by: CA Tarun Kapoor
AKGVG & Associates