Petitioners entitled to refund of unutilized input tax credit as exporters, while Circular No. 172/04/2022 restricting such claims based on deemed exports deemed inapplicable.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr.Uchit N.Sheth for the petitioners and learned advocate Ms. Hetvi H. Sancheti for the respondents.

2. Rule returnable forthwith. Learned advocate Ms. Hetvi Sancheti waives service of notice of rule on behalf of the respondents.

3. This group of petitions involve similar issue of denial of refund of tax in view of Circular No.172/04/2022-GST dated 06.07.2022 issued under section 168 of the Central Goods and Service Tax Act, 2017 (For short “the GST Act”).

4. For the sake of convenience, Special Civil Application No.18892 of 2023 is treated as a lead matter.

Facts :

5. Brief facts of Special Civil Application No.18892 of 2023 are that the petitioners are engaged in the business of manufacture and export of Tissue Paper, Wrapping Paper, Disposable Plastic Products. etc. being 100% Export Oriented Undertaking(EOU).

6. The petitioners purchased raw materials from the registered suppliers under the GST Act which was utilised for manufacture of the finished products for the purpose of export.

7. Section 54 (3) of the GST Act provides for grant of refund of unutilised input tax credit in case of zero-rated supplies made without payment of tax. The petitioners are accordingly entitled to claim refund of unutilised input tax credit in respect of exports made without payment of tax. Supplies made by the registered person to a 100% EOU also qualified as deemed exports under the provisions of the GST Act. In case of deemed exports, the supply can also be made without payment of tax provided the necessary procedures in this regard are followed. If however, supplies are made to 100% EOU on payment of tax, refund of such tax can be claimed either by the supplier or by the recipient as per the third proviso to Rule 89(1) of the CENTRAL GOODS AND SERVICES TAX RULES , 2017 (For short “the GST Rules”).

8. The suppliers of the raw materials supplied the goods to the petitioners on payment of tax. Therefore, the petitioners were entitled to refund of tax paid to the suppliers as per Rule 89(1) of the GST Rules. Alternatively, the refund could also be claimed of unutilised input tax credit under section 54(3) of the GST Act since it is not disputed that the petitioners ultimately exported the goods manufactured out of the supplies of raw materials received on payment of tax.

9. The petitioners filed a refund application on 11.06.2022 for the month of April, 2022 claiming refund of tax under section 54(3) of the GST Act on the basis that the export had been made without payment of tax and the petitioners were entitled to claim the refund of unutilised input tax credit. The petitioners also filed an undertaking along with the refund application that the petitioners had not purchased the goods without payment of tax under the deemed export Notification No.48/2017 dated 18.10.2017 and Circular No.14/2017 dated 06.11.2017 and the suppliers had not claimed the refund of such tax. The provisional refund was granted on 02.07.2022 pursuant to the refund application.

10. The Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 172/04/2022-GST dated 06.07.2022 wherein it was provided in para 2.2 that in case of deemed export, the tax paid would not be considered as input tax credit and therefore, same would not be considered while calculating the refund under Rule89(4) or Rule 89(5) of the GST Rules.

11. Respondent no.4-Assistant Commissioner, Central GST & Excise, Vadodara-I issued the show cause notice dated 20.07.2022 seeking to withdraw the refund already granted for the month of April, 2022 alleging that the tax paid