Namaste DOST!

What if one small misunderstanding in GST could block lakhs of rupees of refund?

That’s exactly what happened to a Special Economic Zone (SEZ) unit — until the Gujarat High Court reminded everyone of a simple truth: An Input Service Distributor (ISD) is not a separate person. It’s you — the supplier, under another name.

The case of M/s Ajanta Pharma Limited v. Union of India (Gujarat High Court, 16 October 2025) is a must-read for every business that uses ISD registration for distributing input tax credits (ITC).

Summary:

The Gujarat High Court ruled that a SEZ unit can claim refund of unutilized IGST credit distributed by its Input Service Distributor (ISD). The Court held that ISD is an extension of the supplier, not a different entity.

So, when ISD passes on credits to a SEZ unit making zero-rated supplies, the SEZ itself can apply for refund under Section 54(3) of the CGST Act and Rule 89(4) of the CGST Rules.

The Court followed its earlier judgment in Britannia Industries Ltd (2020) and directed the department to process Ajanta Pharma’s refund within three months.

Facts of the Case

Ajanta Pharma Limited operates a Special Economic Zone (SEZ) unit at Dahej, Gujarat. It manufactures and exports medicines — making its outward supplies zero-rated under Section 16 of the IGST Act.

For its operations, Ajanta’s corporate office functioned as an Input Service Distributor (ISD). The ISD received invoices for shared services like marketing, consultancy, and management, and distributed ITC to all its units — including the SEZ.

Since the SEZ’s output supplies were zero-rated, it couldn’t use the IGST credit distributed by the ISD.

Hence, Ajanta Pharma filed refund applications for three quarters (April to December 2023) under Form GST RFD-01, claiming refund of unutilized ITC.

The Assistant Commissioner (CGST, Vadodara-II) accepted the claim and issued refund sanction orders under Form GST RFD-06.

However, the Commissioner of CGST directed an appeal under Section 107(2) of the CGST Act, stating that refunds should have been filed by the supplier, not by the SEZ unit.

The Appellate Authority agreed and reversed the refund order on 18 February 2025.

A show-cause notice followed, demanding recovery of the refund amount.

Feeling wronged, Ajanta Pharma approached the Gujarat High Court under writ jurisdiction.

Legal Issue

The key question before the Court was

Can a SEZ unit claim refund of unutilized IGST credit that was distributed to it by its Input Service Distributor (ISD)?

Put simply — who should apply for the refund when the credit travels through ISD: the supplier, or the SEZ unit that received it?

Arguments

Petitioner (Ajanta Pharma SEZ Unit)

• The law is already settled by the Gujarat High Court in Britannia Industries Ltd v. Union of India (2020) and IPCA Laboratories Ltd v. Union of India (2021).

• An ISD is not a separate person—it’s an office of the supplier that only distributes credits.

• Denying refund to SEZ would violate judicial discipline and lead to unjust blockage of credit.

Respondents (GST Department)

• Under Rule 89(1) of the CGST Rules, the “supplier” must file the refund for supplies to SEZ.

• There is no specific rule or circular allowing SEZ units to seek refund for ITC distributed by ISD.

• The department argued that since SEZ is a recipient, it cannot claim refund.

⚖️ High Court’s Decision

The Division Bench of Justice Bhargav D. Karia and Justice Pranav Trivedi found the issue “narrow but important.”

The Court reaffirmed the ratio of Britannia Industries Ltd (2020) — that an ISD is an office of the supplier, not an independent taxable person.

It explained:

“The input service distributor, as defined under Section 2(61) of the CGST Act, is an office of the supplier which receives invoices for input services and issues documents to distribute the credit of CGST, SGST, or IGST paid on such services.”

Therefore, when ISD distributes credit to a SEZ unit, the supplier cannot apply for refund — because the credit now belongs to that SEZ unit. The SEZ must be allowed to claim refund under Section 54(3).

The Court also noted that no stay or contrary decision existed against the Britannia Industries ruling, and officers were bound to follow judicial precedents.

As a result, the High Court:

• Quashed the appellate order dated 18 February 2025, and

• Directed the department to process Ajanta Pharma’s refund within three months.

Legal Reasoning Made Simple

Let’s decode this in plain language. 👇

1. Who is ISD under GST?

It’s your own office that receives invoices for services used by multiple units and passes the credit proportionately.

2. Why SEZ deserves refund:

Since SEZ makes zero-rated supplies, its ITC remains unutilized. Denying refund means locking genuine credits.

3. What Rule 89 actually means:

Though the rule says the “supplier” files refund for SEZ supplies, in this context, the supplier and SEZ are part of the same organization. The ISD is not a third party; it’s part of the same legal person.

4. Judicial discipline:

Once a High Court has interpreted the law, every department officer must follow it unless a higher court overturns it.

Takeaway: What Every Business Should Learn

✅ ISD is your reflection, not a separate entity.

When ISD distributes ITC, it’s just transferring your own credit internally—not creating a new transaction.

✅ SEZs can claim refund for unutilized ISD credit.

Section 54(3) allows refund of ITC in zero-rated supplies, and courts have confirmed that ISD credit qualifies.

✅ Departmental appeals can’t override settled law.

Once a High Court has ruled, officers must comply—filing contrary appeals or rejecting claims is judicial indiscipline.

✅ Maintain clear ISD documentation.

Keep invoices, distribution records, and RFD forms in order. It strengthens your refund claim and speeds up processing.

✅ Watch for future circulars or clarifications.

The judgment will likely prompt CBIC to issue a clarification, benefiting other SEZ units and exporters.

Why This Matters

This case sets a strong precedent for multi-location businesses using ISD registrations.

It prevents unnecessary blockage of working capital and ensures that input tax neutrality — a key GST promise — remains intact.

By reaffirming that ISD is part of the supplier, the Court has removed one of the biggest procedural hurdles faced by SEZ exporters across India.

Conclusion

The Ajanta Pharma case is more than a refund dispute — it’s a reminder that GST is built on the idea of seamless credit flow.

When the law says “Input Service Distributor,” it doesn’t mean another taxpayer; it means you, managing your own credits.

So next time someone says, “You can’t claim refund because ISD gave you the credit,”

remember this judgment — and say with confidence:

“ISD is not separate. It’s me.”

📞 Need help with ISD credit or SEZ refund issues? Contact GST DOST for expert guidance and representation.

FAQ

Q1. What was the Ajanta Pharma case about?

A: The SEZ unit of Ajanta Pharma claimed refund of unutilized IGST credit distributed by its ISD. The department denied it, saying only suppliers could apply.

Q2. What did the Gujarat High Court decide?

A: The Court ruled that ISD is an office of the supplier. Hence, the SEZ unit can claim refund of such unutilized ITC.

Q3. Which laws were applied?

A: Section 54(3) and Section 107 of the CGST Act, Section 16 of the IGST Act, and Rule 89(4) of the CGST Rules.

Q4. Does this help all SEZs in India?

A: Yes, it sets a persuasive precedent. Other SEZ units facing similar refund denials can rely on this judgment.

Q5. Can an SEZ unit claim refund of ITC received from its ISD?

Answer: Yes. The Gujarat High Court clearly held that an Input Service Distributor (ISD) is part of the supplier’s own organization, not a separate entity. Therefore, a SEZ unit can claim refund of the Input Tax Credit (ITC) distributed to it by its ISD.

References

• M/s Ajanta Pharma Limited v. Union of India & Ors., Gujarat High Court, R/Special Civil Application No. 6833 of 2025 (16 October 2025).

• Britannia Industries Ltd v. Union of India, (2020) 42 GSTL 3 (Gujarat).

• IPCA Laboratories Ltd v. Union of India, SCA No. 638 of 2021 (Gujarat High Court).

• Section 54 & 107, CGST Act, 2017.

• Section 16, IGST Act, 2017.

• Rule 89, CGST Rules, 2017.

Written by CA Vikash Dhanania | Reviewed by GST DOST Legal Research Team | Updated on 02/11/2025

© GST DOST | “Samajh Badlegi, Compliance Sudhregi.”