SEZ units are eligible to claim a refund of unutilized input tax credit under Section 54 and Rule 89.

By | October 1, 2026
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SEZ units are eligible to claim a refund of unutilized input tax credit under Section 54 and Rule 89.
Issue
Whether a Special Economic Zone (SEZ) Unit is eligible to apply for a refund of unutilized Input Tax Credit (ITC) under Section 54 read with Rule 89 of the CGST Rules and Section 16 of the IGST Act, or if such refund can only be claimed by the supplier making zero-rated supplies to the SEZ.
Facts
  • Nature of Assessee: The petitioner is a established Special Economic Zone (SEZ) Unit.
  • Refund Application: The petitioner submitted a claim for a refund of unutilized Input Tax Credit (ITC) pursuant to Section 54 of the CGST Act, 2017, Rule 89 of the CGST Rules, 2017, and Section 16 of the IGST Act, 2017.
  • Initial Rejection: The adjudicating authority rejected the petitioner’s refund application, holding that refund under these provisions is restricted solely to suppliers providing goods or services to SEZ units.
  • Appellate Order: The appellate authority upheld the initial rejection order.
  • Writ Petition: Aggrieved by the orders of both authorities, the petitioner filed a writ petition challenging the rejection.
Decision
  • Scope of Rule 89(1): The High Court held that Rule 89(1) of the CGST Rules does not impose any restriction confining the refund application exclusively to suppliers.
  • Interpretation of Second Proviso: Reference to a “supplier” in the second proviso to Rule 89(1) does not exclude other eligible entities (such as SEZ units) from applying for a refund.
  • Prohibition on Adding Words: Reading the word “only” into the proviso to restrict claims to suppliers is legally impermissible.
  • Statutory Entitlement: On a combined reading of Section 54 of the CGST Act and Rule 89 of the CGST Rules, an SEZ unit is fully eligible to claim a refund of unutilized ITC, with entitlement deriving directly from Section 16 of the IGST Act.
  • Precedential Alignment: The court followed established precedents that took an identical interpretation of the provisions.
  • Relief Granted: The impugned rejection orders were set aside, and the authorities were directed to process the petitioner’s refund application in accordance with the law (decided in favor of the assessee).
Key Takeaways
  • Broad Eligibility for SEZ Units: SEZ units receiving zero-rated supplies can directly apply for and claim a refund of unutilized ITC under Section 54 of the CGST Act.
  • Strict Construction of Tax Rules: Courts will not read restrictive terms like “only” into tax statutes or rules where the text does not explicitly limit beneficial entitlement.
  • Harmonious Reading: Section 16 of the IGST Act, read with Section 54 and Rule 89 of the CGST framework, guarantees substantive refund rights to SEZ recipients, not just their suppliers.
HIGH COURT OF MADRAS
McKinsey Global Services India Pvt ltd.
v.
Joint Commissioner (Appeals II)*
Senthilkumar Ramamoorthy, J.
WP No. 26469 of 2026
WMP No. 28949 of 2026
SEPTEMBER  18, 2026
Kamal Sawhney and Vivek Anandh for the Petitioner. S.Gurumoorthy, Sr. SC and G.Meganathan, Jr. SC for the Respondent.
ORDER
1. The petitioner is a SEZ Unit. Order-in-original dated 09.11.2023 and appellate order dated 13.02.2024 are challenged in this writ petition.
2. Relying on the judgment of this Court in Platinum Holdings (P.) Ltd. v. Additional Commissioner of GST & Central Excise, Chennai   (Madras)/2021 (47) GSTL 30 (Mad.) (Platinum Holdings), it is contended on behalf of the petitioner that the issue raised in this writ petition is squarely covered by the judgment of this Court. Reliance is placed on paragraph-16 of the judgment. In addition, referring to the judgment in Urjita Electronics (P.) Ltd. v. Joint Commissioner of GST and Central Excise   (Madras)/2025 (29) Centax 360 (Urjita Electronics), it is submitted that the same position was adopted in this later judgment. Therefore, learned counsel submits that the writ petition is liable to be allowed.
3. In response, Mr.Meganathan, learned standing counsel for the respondents submits that a writ appeal was filed against the judgment in Platinum Holdings. He admits that no interim order was obtained therein.
4. The issue that arose for consideration in the impugned order is evident from paragraph 5.8 thereof. Said paragraph reads as under:
“5.8 Section 16 of the IGST Act, 2017, Section 54 of the CGST Act, 2017 and Rule 89 of CGST Rules, 2017 in conjunction stipulates that only suppliers supplying goods and/or services to SEZ units are eligible to claim refund, if they opt to make such supplies on payment of tax. There is no discord between the CGST Act, IGST Act or the Rules. All three clearly state that suppliers supplying goods and/or services to SEZ shall supply for refund of un-utilized credit. Thus, there is no enabling provision for the SEZ unit to claim refund of un-utilized credit in the GST legislation.”
5. In Platinum Holdings, the same issue arose for consideration. Relevant paragraphs 6, 16 and 17 are set out below:
“6. The issue for resolution has been crystalized at para 5 of the impugned order as to ‘whether a SEZ unit is eligible to claim refund of unutilized Input Tax Credit (ITC)’. The authority refers to the provisions of Section 54 of the CGST Act dealing with applications for refund and Rule 89(1) of the Central Goods and Services Tax Rules, 2017 (CGST Rules) under Chapter X thereof, which deal with the procedure for disposal of applications seeking refund of tax, interest, penalty fees or other amounts.
…..
16. Learned Senior Standing Counsel has taken me through Rule 89, particularly, the second proviso thereto, as sell as Clause (f) of sub-rule 2, which refer to an application filed by a supplier to a SEZ. This, according to her, would indicate that an application for refund should only be filed by a supplier. I do not agree for the reason that Rule 89(1) does not envisage any such restriction and, in my view, applies to any entity. No doubt, the second proviso refers to a supplier of an SEZ, which is only one kind of entity that may make an application under Rule 89. This is not to say that the reference to a supplier, will exclude, by virtue of such reference, other applicants.
17. Thus, on a combined reading of Section 54 and Rule 89, the restriction which has been read into the provision by the Revenue is, in my view, misplaced. In fact, the Officer in the impugned order proceeds on the basis that the second proviso to Rule 89 deploys the word ‘only’, which I do not find in the second proviso. It is a settled position that there can be no insertion of a word or phrase in a statutory provision or in a Rule which must be read and applied, as framed . No restrictions or amplifications of the Rule are permissible by interpretation. On the legal issue of entitlement to refund, I hold in favour of the petitioner.”
6. The subsequent judgment of this Court in Urjita Electronics reiterates the same position. I see no reason to deviate from the reasoning in those decisions. Consequently, the impugned order is set aside and the respondents are directed to process the refund application in accordance with this and other judgments cited herein. This process shall be completed within two months from the date of receipt of a copy of this order
7. The writ petition is allowed on the above terms. Consequently, connected miscellaneous petition is closed. No costs.