Facts of the Case:

In this case, the petitioner being 100% Export Oriented Units (EOUs) were engaged in the manufacture and export of tissue paper, wrapping paper, disposable plastic products, etc. The petitioners procured raw materials from registered domestic suppliers on payment of GST. These inward supplies were used in the manufacture of finished goods, which were ultimately exported without payment of tax under Letter of Undertaking, thereby constituting zero-rated supplies under Section 16 of the IGST Act, 2017.

The petitioners filed refund applications under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules, claiming refund of accumulated input tax credit (ITC) arising on account of zero-rated exports. The refund was initially sanctioned by the department. Subsequently, relying upon Circular No. 172/04/2022-GST dated 06.07.2022, the department initiated proceedings to withdraw the refunds on the ground that ITC relatable to deemed export supplies could not be included in “Net ITC” for refund computation and that the petitioners ought to have filed refund claims under Rule 89(1) or Rule 89(4A) instead of Rule 89(4). Refunds already granted were sought to be recovered through review under Section 107(2), appellate proceedings, and show cause notices under Section 73 of the CGST Act.

Aggrieved by the withdrawal and rejection of refunds across multiple periods, the petitioners approached the High Court challenging the appellate orders, recovery proceedings, and the application of the impugned circular.

Issue:

Whether the refund claims filed by the petitioners under Rule 89(4) read with Section 54(3) were wrongly rejected on the ground that the petitioners ought to have applied under Rule 89(4A) or the proviso to Rule 89(1). Whether the respondent authorities were justified in reviewing sanctioned refund orders under Section 107(2) and initiating recovery proceedings under Section 73 of the CGST Act.

Held that:

The Court found that the petitioners were exporters of finished goods, and the refund claims were made in respect of zero-rated exports, not in respect of deemed export supplies. The inward supplies received by the petitioners were treated as regular taxable supplies, and neither the suppliers nor the petitioners had availed benefits under Notification No. 48/2017 or followed the deemed export procedure prescribed under Circular No. 14/2017.

It was held that merely because supplies were made to a 100% EOU, the same would not automatically assume the character of deemed exports unless the statutory conditions and procedural requirements were satisfied. Since the suppliers did not treat the supplies as deemed exports and the petitioners did not claim refund as recipients of deemed exports, Rule 89(4A) had no application to the facts of the case.

The Court further held that para 2.2 of Circular No. 172/04/2022 applies only where refund of tax paid on deemed export supplies is claimed by the recipient. As the petitioners had not claimed refund of tax paid on deemed export supplies, but had instead claimed refund of accumulated ITC on zero-rated exports, the circular was inapplicable.

Accordingly, the Court quashed the impugned orders withdrawing and rejecting the refunds, set aside the appellate orders and recovery proceedings, and directed the respondents to grant refund to the petitioners in accordance with law. The challenge to the vires and retrospective operation of the circular, as well as issues relating to invocation of Sections 73/74 and Section 107(2), were expressly left open.

Case Name: Shah Paperplast Industries Ltd. & Anr., Nilesh Chandravadan Shah Director. Versus Union of India & Ors., Central Board of Indirect Taxes And Customs, Additional Commissioner CGST And Central Excise Appeals, Assistant Commissioner Central GST And Excise. Dated 13.11.2025

To read the complete judgement 2025 Taxo.online 3013