The Gujarat High Court recently ruled in favor of M/s Ajanta Pharma Ltd., a Special Economic Zone (SEZ) unit, in a case concerning the refund of Input Tax Credit (ITC) distributed by an Input Service Distributor (ISD) for zero-rated supplies. Ajanta Pharma, engaged in pharmaceutical manufacturing and exports, had accumulated ITC due to the absence of output tax liability. They sought refunds for the quarters from April to December 2023 under the relevant sections of the Central Goods and Services Tax (CGST) Act.
Initially, the Assistant Commissioner of CGST approved these refunds, but the decision was overturned by the Appellate Authority, which argued that SEZ units were not entitled to such refunds. This led to a show cause notice demanding the recovery of the refunded amount. The central issue was whether SEZ units could claim refunds of ITC distributed by ISD for zero-rated supplies.
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The High Court determined that the ISD functions as an administrative body that allocates credit from input services to recipient units and that SEZ units are indeed eligible for such refunds. This decision aligned with previous rulings in similar cases, such as Britannia Industries Ltd. and IPCA Laboratories Ltd. The court criticized the Appellate Authority's decision as contrary to established law and judicial norms, directing that the sanctioned refunds be restored and processed promptly. The ruling emphasized that pending appeals in the Supreme Court do not negate the binding effect of High Court decisions.
Order Date: 16 October 2025
Case Title: M/s Ajanta Pharma Ltd. v. Union of India & Ors.
Facts
- The petitioner, M/s Ajanta Pharma Ltd., a Special Economic Zone (SEZ) unit, was engaged in the manufacture of pharmaceuticals and exported goods as zero-rated supplies under Section 16 of the IGST Act.
- It received Input Tax Credit (ITC) from its Input Service Distributor (ISD) under Section 20 of the CGST Act, but the ITC accumulated due to the absence of output liability.
- The SEZ unit filed refund applications under Section 54(3) read with Rule 89(4) for quarters between April and December 2023.
- Refunds were initially sanctioned by the Assistant Commissioner, CGST, Vadodara-II, but later set aside by the Appellate Authority, which held that SEZ units were not entitled to claim refunds of ITC distributed by ISD.
- Following this, a show cause notice under Section 73(1) was issued seeking recovery of the refunded amount.
Issue
- Whether an SEZ unit can claim refund of ITC distributed by an Input Service Distributor (ISD) under Section 54(3) of the CGST Act for zero-rated supplies?
Order
- The Court held that ISD is only an administrative office of the supplier and merely distributes the credit earned on input services to recipient units.
- ITC distributed to SEZ units is eligible for refund, consistent with earlier Gujarat High Court decisions in Britannia Industries Ltd. v. Union of India and IPCA Laboratories Ltd. v. Union of India.
- The Appellate Authority’s decision denying refund was termed contrary to settled law and judicial discipline.
- The High Court quashed the impugned order and directed restoration of refunds already sanctioned by the Assistant Commissioner.
- Authorities were instructed to process refunds without delay, emphasizing that pending Supreme Court appeals do not suspend the effect of binding High Court rulings.
