100% EOU entitled to refund of unutilized ITC on exports made without payment of tax, where deemed export provisions not followed and its benefits not availed

The Hon'ble Gujarat High Court in M/s. Shah Paperplast Industries Ltd. &Anr. v. Union of India & Ors.[R/Special Civil Application No. 17246 of 2022, 17080 & 18892 of 2023, 96 & 8319 of 2025dated November 13, 2025], set aside the Appellate Order ("Impugned Order") withdrawing refund granted towards unutilised input tax credit ("ITC") and held that a 100% Export Oriented Unit ("EOU") exporting goods without payment of tax is entitled to refund of unutilized ITC under section 54(3) of the Central Goods and Services Act, 2017 ("the CGST Act") read with Rule 89(4) of the Central Goods and Service Tax Rules, 2017 ("the CGST Rules"), and that Appellate Authority could not deny refund only on the ground that the claim was not filed under Rule 89(4A) of the CGST Rules where neither the supplier nor the recipient had availed deemed export benefits under Notification No. 48/2017 - Central Tax dated October 18, 2017 ("Notification No. 48") nor the procedure prescribed under Circular No. 14/14/2017 - GST dated 6.11.2017("Circular No. 14") in case of deemed export has been followed by the suppliers.

Facts:

M/s Shah Paperplast Industries Ltd.("the Petitioner" or "100% EOU") is a 100% EOU engaged in manufacture and export of tissue paper, wrapping paper and disposable plastic products. It procured raw materials from the registered suppliers ("suppliers" or "deemed exporters"), used the inputs to manufacture goods, and exported the finished goods without payment of tax. However, the suppliers did not show such supplies as deemed export but have shown as regular B2B supplies i.e. in regular form only. The suppliers did not follow the procedure as per Circular No. 14 nor endorsed any invoices as an EOU unit as per the procedure prescribed therein.

The Petitioner filed an application for refund for unutilised ITC under Section 54(3) of the CGST Act r/w Rule 89(4) of the CGST Rules on June 11, 2022 for the month of April 2022. The Petitioner also filed an undertaking along with the refund application that the suppliers had not claimed refund of such tax and the Petitioner had not purchased goods without payment of tax under the deemed export Notification No. 48 and Circular No. 14. The refund was granted provisionally on July 2, 2022.

Thereafter, the Central Board of Indirect Taxes and Customs ("the CBIC") issued Circular No. 172/04/2022 - GST dated July 6, 2022("Circular No. 172"). Para 2.2 of the Circular No. 172 clarified that in case of deemed export, tax paid would not be considered as ITC and would not be considered while calculating refund under Rule 89(4) or 89(5) of the CGST Rules. Relying on this Circular No. 172, the Assistant Commissioner of Central GST & Excise Vadodara-I ("Adjudicating Authority" or "Respondent") issued show cause notice ("SCN") to withdraw refund already sanctioned for the month of April, 2022 alleging that the tax paid on deemed exports would not be considered as ITC for the purposes of refund of unutilized ITC under Section 54(3) of the CGST Act.

The Petitioner, therefore, preferred Special Civil Application No. 17246 of 2022 challenging the Circular No. 172 as well as notice for withdrawing refund for the month of April, 2022. However, during the pendency of the petition, the Adjudicating Authority passed the Order withdrawing the refund for the month of April 2022. Nevertheless, ad-interim relief was provided by the Court to the Petitioner against any coercive recovery.

In the meantime, the refund granted for the period from December, 2021 to March, 2022 was also sought to be reviewed by the Adjudicating Authority on the basis of Circular No. 172 and it was found that appeal be preferred against the granted refunds on the ground that there was sanction of erroneous refund under Rule 89(4) instead of Rule 89(4A)/proviso to Rule 89(1) of the CGST Rules. Accordingly, an appeal was preferred by the Respondent, challenging the refund order. The Petitioner made submissions to the appeal, however, the Appellate Authority allowed the appeal of the Respondents and directed withdrawal of the refund already granted to the Petitioner along with interest.

Being aggrieved, the Petitioner preferred the present Writ Petition.

Issue:

Whether a 100% EOU is entitled to refund of unutilized ITC on exports made without payment of tax, where deemed export provisions not followed and its benefits not availed either by the supplier or by the 100% EOU?

Held:

The Hon'ble Gujarat High Court in R/Special Civil Application No. 17246 of 2022, 17080 & 18892 of 2023, 96 & 8319 of 2025 held as under:

• Observed that, the petitioners are not deemed exporters but are exporters of goods (zero-rated supplies) under section 16(1) of the Integrated Goods and Services Act, 2017 ("the IGST Act"). All inward supplies were received from the suppliers on payment of GST, who had not taken any deemed export benefit under terms Circular No. 14, nor were any invoices endorsed as an EOU unit by the Petitioner as per the prescribed in the said Circular No. 14. The petitioner exported goods without payment of tax under Letter of Undertaking ("LUT") leading to accumulation of ITC for which refund was rightly claimed.
• Noted that, the zero-rated supplies made by the petitioner is not coming in the purview of the deemed exports because the petitioner has exported the goods and therefore, is entitled to refund of the unutilised ITC as per Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules.
• Emphasized that, the Circular No. 172 only clarifies that the ITC of the tax paid on deemed export supplies allowed to the recipients for claiming refund of such tax, is not ITC in terms of provisions of Chapter-V of the CGST Act and therefore, such ITC availed by the recipient of deemed export is not to be included in the Net ITC for computation of refund of unutilised ITC on account of zero-rated supplies under Rule 89(4) of the CGST Rules or on account of inverted rated structure ("IDS") under Rule 89(5) of the CGST Rules.
• Observed that, the Petitioner has not claimed any refund of the ITC on the deemed export supply and the refund claim is filed by the Petitioner being 100% EOU of zero-rated supply without payment of tax. The Petitioner is therefore, not governed by para no. 2.2 of the Circular No. 172.
• Noted that, had the suppliers claimed the refund being the deemed exporters regarding ITC paid on such deemed export supplies, then the clarificatory Circular No. 172 would have been applicable. When the Petitioner is not the deemed export suppliers, Rule 89(4A) of the CGST Rules would also not be applicable to the Petitioner as Rule 89(4A) has been omitted by the Central Goods and Services Tax (Second Amendment) Rules, 2024 with effect from October 08, 2024.
• Held that, the supply of raw materials by the suppliers would have amounted to deemed export if the suppliers would have claimed the refund of the tax paid on such supplies. However, the petitioners who have actually exported the goods have claimed the refund and therefore, the reliance placed by the Respondents on the basis of supplies made to the Petitioner by the suppliers to attract the provisions of section 2(39) read with section 147 of the CGST Act and Rule 89(4A) of the CGST Rules, would not be applicable. Therefore, the Appellate Authority was not justified in disallowing the refund on the ground that the claim had not been filed under Rule 89(4A) of CGST Rules.
• Held that, since the petitioners had never claimed the benefits prescribed under Notification 48 as deemed exporter; Para 2.2 of Circular No. 172 did not apply to the facts of the case, therefore, challenge to Circular No. 172 is without any basis. Consequently, the vires of retrospective application of Circular No. 172 was left open.
• Directed that, the impugned orders rejecting refunds be set aside, and the Respondents process the refund as per the claims made by the Petitioner, in accordance with law, within 12 weeks from receipt of the this Order.

Our Comments:

The Gujarat High Court ruling in Shah Paperplast(supra) underscores that an EOU that exports goods under LUT without using the benefits of deemed exports contained in Notification No. 48, can claim refund of accumulated unutilized ITC under section 54(3) of CGST Act read with Rule 89(4) of CGST Rules.

Relevant Provisions:

Section 2(39) of the CGST Act:

Deemed exports means such supplies of goods as may be notified under section 147.

Section 147 of the CGST Act: Deemed exports

The Government may, on the recommendations of the Council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

Rule 89 of the CGST Rules: Application for refund of tax, interest, penalty, fees or any other amount

(1) Any person, except the persons covered under notification issued under section 55, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49 or] any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, may file, subject to the provisions of rule 10B, an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner:

Provided that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the -

(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;

(b) supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone:

Provided further that in respect of supplies regarded as deemed exports, the application may be filed by, -

(a) the recipient of deemed export supplies; or

(b) the supplier of deemed export supplies in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund

Provided also that refund of any amount, after adjusting the tax payable by the applicant out of the advance tax deposited by him under section 27 at the time of registration, shall be claimed only after the last return required to be furnished by him has been so furnished.

Explanation. - For the purposes of this sub-rule, "specified officer" means a "specified officer" or an "authorised officer" as defined under rule 2 of the Special Economic Zone Rules, 2006.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED