Facts of the Case: In this case petitioner, a SEZ received input services proportionately distributed by its Input Service Distributor (ISD), on which IGST was levied. As the SEZ Unit made zero-rated supplies, it could not utilise the accumulated ITC and therefore filed refund applications under Section 54(3) of the CGST Act read with Rule 89(4) for various quarters between April–December 2023. The Adjudicating Authority sanctioned the refund claims vide orders dated 05.10.2023, 11.12.2023, and 05.03.2024 and issued corrigenda following the Gujarat High Court judgment in Britannia Industries Ltd. v. Union of India which was affirmed by withdrawal of SLP before the Supreme Court. 

Subsequently, the Commissioner (CGST) directed the Adjudicating Authority to file appeals under Section 107(2), contending that the refunds were invalid as per Section 16(3) of the IGST Act, Section 54(3) of the CGST Act, and Rule 89 of the CGST Rules. The Appellate Authority allowed the departmental appeals and set aside the refund sanction orders. A show-cause notice under Section 73(1) was also issued on 12.03.2025 seeking recovery of the refunded amount.

Aggrieved, the petitioner filed the present writ petition before the Gujarat High Court challenging the appellate order and seeking restoration of refund entitlement.

Issue: Whether a SEZ Unit receiving input services distributed by an Input Service Distributor is eligible to claim refund of unutilised ITC of IGST lying in its Electronic Credit Ledger under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules, 2017, when no supplier can independently claim such refund.

Held that:

The Court held that the issue is squarely covered by the coordinate bench decision in Britannia Industries Ltd. v. Union of India , which recognized that SEZ Units receiving input services through ISD are entitled to refund of ITC under Section 54(3).

Referring to Section 2(61) of the CGST Act, the Court observed that ISD is an office of the supplier that receives invoices for input services and distributes the credit of tax paid. It is not feasible for the supplier to file a refund claim for such distributed credit, making the SEZ Unit the proper claimant. The argument that only the supplier, and not the SEZ recipient, could claim refund under Rule 89(1) was rejected, as it ignored the functional position of ISD and the factual impossibility of the supplier filing the claim.

The Court reaffirmed its earlier rulings in Amit Cotton Industries and IPCA Laboratories Ltd. v. Union of India , both holding that SEZ units are entitled to refund of ITC of IGST when there is no specific supplier eligible to claim it.

Since the Supreme Court had not stayed or reversed the Britannia decision and the SLP was withdrawn, the binding precedent remained operative and had to be followed by subordinate authorities. The Gujarat High Court allowed the writ petition, quashed the impugned order. The Gujarat High Court reiterated that SEZ Units receiving input services distributed through ISD are entitled to refund of unutilised ITC of IGST under Section 54(3) of the CGST Act. The contrary interpretation adopted by the Appellate Authority was contrary to binding judicial precedent and amounted to judicial indiscipline.

Case Name: M/s. Ajanta Pharma Limited Versus Union of India & Ors. dated 16.10.2025

To read the complete judgement 2025 Taxo.online 2741