SEZ Units Can Claim Unutilized ITC Refunds as Binding

SEZ Units Can Claim Unutilized ITC Refunds as Binding Precedents Hold Field Pending Supreme Court SLP

Issue

Whether an SEZ unit is legally entitled to file a refund claim for unutilized Input Tax Credit (ITC), including Input Service Distributor (ISD) credit, and whether tax authorities can refuse to follow a binding High Court precedent simply because a Special Leave Petition (SLP) against it is pending before the Supreme Court.

Facts

The petitioner is a registered Special Economic Zone (SEZ) unit that filed statutory applications for the refund of unutilized ITC, including ISD credit, under the zero-rated supply scheme of the IGST Act read with Rule 89 of the CGST Rules.
The lower tax authorities rejected the refund claims, asserting a lack of locus standi on the ground that only the supplier to the SEZ unit—and not the SEZ recipient unit itself—could legally apply for such a refund.
On appeal, the Appellate Authority affirmed the rejection and explicitly declined to follow the established law laid down by the Gujarat High Court in Britannia Industries Ltd. v. Union of India, solely because an SLP against that judgment was pending before the Supreme Court.
During the High Court proceedings, the State counsel raised a new contention that a refund under the IGST zero-rated scheme requires an explicit endorsement by a Specified Officer of the SEZ confirming that the services were used for authorized operations.
The petitioner countered that this endorsement point had never been raised by the lower authorities in the original rejection orders, depriving the petitioner of an opportunity to address or produce the necessary documentation.

Decision

Held, yes: The refusal by tax authorities to apply a binding High Court precedent simply because an SLP is pending before the Supreme Court is legally incorrect and unsustainable.
Held, yes: Until the Supreme Court decides otherwise, a question of law decided by a High Court continues to hold the field and binds tax authorities nationwide in the absence of a contrary view from another High Court.
Held, yes: The respondents are duty-bound to examine the refund claims by recognizing the legal entitlement and locus standi of the SEZ recipient unit to apply for a refund under the principles of the Britannia Industries ruling.
Matter remanded: Because the lower orders contained no factual findings regarding the Specified Officer’s endorsement for authorized operations, the impugned orders are quashed, and the matter is remanded to the Assessing Officer for a fresh decision on merits.

Key Takeaways

Pending SLP Does Not Stay Precedent: A judgment delivered by a High Court remains fully operative and binding on sub-ordinate tax authorities across the country even if the Revenue Department has challenged it via an SLP, unless the Supreme Court explicitly stays the operation of that judgment.
SEZ Locus Standi for Refunds: An SEZ unit has the legal standing to claim a refund on unutilized ITC and ISD credit for inputs accumulated on zero-rated supplies, disrupting the narrow interpretation that only external suppliers can file claims.
Authorized Operations Endorsement is Essential: While an SEZ unit has the locus standi to apply for a refund, the claim must still satisfy structural compliance checks, which includes verifying that the received services were endorsed by a Specified SEZ Officer for authorized operations.

HIGH COURT OF BOMBAY

Lupin Ltd.

State of Maharashtra^*

ANIL L. PANSARE and RAJ D. WAKODE, JJ.

WRIT PETITION NO. 4164 OF 2024

NOVEMBER 21, 2025

P. Shah, Sr. Adv., M. Raval and A. Potnis, Advs. for the Petitioner. M.I. Dhatrak and P.V. Navlani, Advs. for the Respondent.

ORDER

1. The petitioner – Company has approached this Court with following substantive prayer:

“i. that this Hon’ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the Petitioner’s case and after going into the validity and legality thereof to quash and set aside the three impugned Refund Rejection Orders dated 17.01.2022 passed by the Respondent No. 6, the impugned Refund Rejection Order dated 04.08.2023 passed by the Respondent No.5, the impugned Refund Rejection Order 07.05.2024 passed by the Respondent No. 4 (Annexure A1 to A5), and impugned orders-in-appeal both dated 21.06.2024 passed by the Respondent No. 3 (Annexures A6 and A7) and the impugned order-in-appeal dated 20.06.2024 passed by the Respondent No. 3 (Annexure A8)”

2. Heard Mr. P. Shah, learned Senior Counsel for petitioner, Mr. M. I. Dhatrak, learned counsel for respondent Nos. 1 to 7 and Mr.P. V. Navlani, learned counsel for respondent No.8. Perused the impugned orders passed by respondent Nos. 3 to 6.

3. The refund applications filed by petitioner were rejected on the ground that in terms of provisions of the Maharashtra Goods and Service Tax Act, 2017 (“MGST Act”) and the Central Goods and Services Tax Act, 2017 (“CGST Act”) read with Rules of CGST Act and Section 16(3) of the Integrated Goods and Service Tax Act, 2017 (“IGST Act”), the supplier of services to the Special Economic Zones (“SEZ”) Unit can only file the refund application.

4. In the present case, the refund applications were filed by the petitioner which, admittedly, is a SEZ Unit. The appellate authority observed that under the aforesaid provision, there is no bar or restriction either on availing ISD credit by a SEZ Unit or on claiming refund of such ISD credit availed. However, the refund was rejected for following reasons :

“Proviso to Rule 89(1) restricts the claim of refund to the extent of supplier to the Special economic zone and stipulates that only the supplier of goods or services can file the refund claim after due endorsement by the Specified Officer of the SEZ for receipt of goods in full/receipt of services with evidence, for authorized operations.

Further regarding the judgment referred by appellant in case of M/s Britannia Industries Ltd versus Union of India, it is observed that, as there is a law point, above matter has been appealed before Hon’ble Apex Court and Special leave petition has been filed, which is admitted by the Hon’ble Apex Court and litigation are going on and the matter is pending in the form of SLP No.13431 of 2021 before the Hon’ble Apex Court. In view of this, this office has earlier kept this matter sine die till the pronouncement of judgment by the Hon’ble Apex court, against which appellant has requested for early disposal of the matter.

Therefore, in view of facts discussed above, Officers view point is confirmed at this stage, Appellant is not entitled for refund of the ITC as the appellant is a SEZ unit and in view of the provision of section 54 of the CGST Act read with Rule 89 of the Central Goods and Service Tax Rules,2017 (for short ‘CGST Rules’) only a supplier of goods or services can file an application for refund and not recipient of the services. As in the facts of the case, the appellant is a recipient of service; the appellant is not entitled to apply for the refund under the provisions of the CGST Act read with the CGST Rules.

Furthermore, there is no circular, notification or guidelines issued by the Government or Central Board of Indirect Taxes and Customs to process the input tax credit refund claims of the units located in the SEZ and therefore, the competent authority has rightly rejected the claim of the refund made by the appellant by passing the impugned order.”

5. Thus the appellate authority refused to follow the law laid down by the Gujarat High Court in the case of Britannia Industries Ltd. v. Union of India 42 GSTL 3 (Gujarat) only because the judgment was challenged before the Apex Court and the petition was pending.

6. Mr. Shah, learned Senior Counsel for the petitioner, submits that the Supreme Court has disposed of the petition as not pressed for orders on the ground of low tax effect. Mr. Shah has then invited our attention to another order of Hon’ble Supreme Court passed in Special Leave Petition between Union of India v. Messrs Meghmani Organochem Ltd. 112 GST 337 (SC) [S.L.P (C) No.1239/2025, decided on 22.09.2025], wherein another judgment of Gujarat High Court was challenged. The judgment, that was challenged was rendered in terms of law laid down in Britannia’s case supra. The Hon’ble Supreme Court on 22.09.2025, disposed of the petition in following terms:

“1. The High Court relying on its decision rendered in the case of “Britannia Industries Limited v. Union of India” reported in 2020 G.S.T.L. 3 (Guj) accepted the arguments canvassed on behalf of the respondent herein-original petitioner that an SEZ Unit is entitled in law to claim the refund of unutilised ITC accumulated under Rule 89 of CGST Rules on the ground that exports are made without payment of tax under LUT.

2. Mr. Chandrashekhara Bharathi, the learned counsel appearing for the revenue submitted that Britannia Industries Limited (supra) was challenged before this Court, however, the challenge failed on the ground of low tax effect. He would submit that it is only the supplier who could have preferred the application claiming a refund of the unutilised IT accumulated under Rule 89 of the CGST Rules and not the SEZ Unit.

3. In the peculiar facts and circumstances of the case and having regard to the amount which has been ordered to be refunded, we are not inclined to interfere with the impugned order. However, the question of law is kept open.

4. The Special Leave Petition is, accordingly, dismissed.

5. Pending application(s), if any, stands disposed of.”

7. As could be seen, the Supreme Court has disposed of the petition by keeping the question of law open.

8. Considering the above, the status as of now is that the law laid down by the Gujarat High Court in Britannia’s case holds the field. The Bombay High Court in the case of CIT Vidarbha v. Smt. Godavaridevi Saraf 1978 (2) ELT (J 624) (Bom), held that the law declared by a High Court, though of another State, is a binding law of the land and all authorities like a Tax Tribunal acting anywhere in the country are bound by it, until a contrary decision is given by any other High Court.

9. Accordingly, Mr. Shah argued, and rightly so, that respondent Nos.3 to 6 are bound by the law laid down in Britannia’s case. Having failed to consider the refund applications filed by the petitioner in terms of the Britannia’s case, the impugned orders are liable to be set aide.

10. At this stage, learned A.G.P. submits that in terms of Section 16 of the IGST Act read with Rule 89 of CGST Rules, refund of tax can be claimed by SEZ Unit if the services were for authorized operations as endorsed by a specified officer of the zone. In the present case, there is no such finding given by the authorities below.

11. As against, learned Senior Counsel for petitioner submits that this point was never raised before the authorities below and, therefore, the petitioner had no opportunity to deal with the same.

12. That being so, we are of the considered view that this matter will have to be remanded back to respondent No.6 – Assistant Commissioner of the State Tax, to pass orders afresh, in the light of the law laid down in Britannia’s case and after examining whether the services under question were for authorized operations as endorsed by the specified officer of the zone.

13. The petition is accordingly partly allowed. Impugned orders dated 17.01.2022, 04.08.2023 and 07.05.2024 passed by respondent Nos. 6, 5 and 4 respectively as also orders in appeal dated 21.06.2024 and 20.06.2024 passed by respondent No.3, are quashed and set aside. The matter is remanded back to respondent No.6 for consideration afresh, in accordance with law and in terms of what has been stated above.

The parties shall appear before respondent No.6 on 08.12.2025.