Refund Cannot Be Denied to Exporters Who Are Not Recipients of Deemed Export Supplies Merely Because They Are EOUs: Gujarat High Court Quashes GST Department’s Recovery Orders

“The petitioners are exporters of goods and have never claimed input tax credit under Notification No.48/2017 as deemed exporters. Para 2.2 of Circular No.172/04/2022-GST is not applicable to them” – Gujarat High Court comprising Justice Bhargav D. Karia and Justice Pranav Trivedi, delivered a significant ruling deciding in favour of 100% Export Oriented Units (EOUs) which had been denied refund of unutilised Input Tax Credit (ITC) under the GST regime.

In a detailed judgment interpreting Sections 54(3), 73 and 107 of the CGST Act, Section 16(1) & (3) of the IGST Act, and Rules 89(1), 89(4), and 89(4A) of the CGST Rules, the Court quashed multiple recovery and refund denial orders passed against the petitioners. It held that petitioners had rightfully claimed refund under Rule 89(4) as exporters and not as recipients of deemed export supplies. Consequently, CBIC Circular No. 172/04/2022-GST dated 06.07.2022 was held inapplicable to them.

“Supplies Made to EOUs Are Not Automatically Deemed Exports – It Depends on Supplier’s Declaration and Procedure Compliance”: Court Rejects Revenue’s Broad Interpretation

The primary legal issue before the Court was whether the CBIC Circular No. 172/04/2022-GST could be applied retrospectively to deny GST refunds to EOUs who had exported goods without payment of tax under Letter of Undertaking (LUT), and who did not receive supplies under “deemed export” classification.

The petitioners, engaged in manufacturing and export of paper and plastic products, claimed refund of accumulated ITC under Section 54(3) of the CGST Act read with Rule 89(4). Authorities, however, relying on para 2.2 of the 2022 Circular, retrospectively withdrew refunds alleging that such EOUs should have claimed refunds under Rule 89(4A) (applicable to deemed exports) instead of Rule 89(4).

The petitioners – 100% EOUs – procured raw materials from domestic registered suppliers on payment of GST, manufactured goods, and exported them under LUT without payment of output tax. Since these exports were zero-rated under Section 16(1) of the IGST Act, they filed refund applications under Section 54(3) and Rule 89(4) for unutilised ITC on inputs and input services.

The refunds were initially granted but were later sought to be recovered, based on Circular No.172/04/2022-GST, which clarified that ITC availed on deemed export supplies is not eligible for refund under Rule 89(4) or 89(5).

The authorities issued show cause notices, passed review orders under Section 107(2), and initiated recovery proceedings under Section 73, treating the earlier refund grants as erroneous.

The petitioners contended that they were not recipients of deemed export supplies, that suppliers had not opted for the deemed export route under Notification 48/2017, and that the refund was rightly claimed under Rule 89(4), not Rule 89(4A). They also challenged the retrospective application of the circular, and argued that the refund withdrawal orders were without jurisdiction.

“Petitioners Are Exporters, Not Deemed Export Recipients – Refund Under Rule 89(4) Is Valid”: Court Clarifies the Scope of Circular 172/04/2022-GST

The Court addressed four legal issues:

1. Was the refund rightly disallowed on the ground that it was filed under Rule 89(4) and not 89(4A)?

Held: No. The Court observed:

“The petitioners are not deemed exporters but actual exporters of goods, resulting in zero-rated supply under Section 16(1) of the IGST Act. The inward supplies to the petitioners were made with payment of GST, and suppliers did not avail benefit of Notification 48/2017.”

“It is not in dispute that the petitioners exported goods under LUT without payment of tax and accumulated ITC for which refund was claimed.”

Hence, Rule 89(4A), which applies only to deemed export recipients, was held inapplicable. Refund under Rule 89(4) was rightly claimed.

2. Could Para 2.2 of Circular No.172/04/2022-GST be applied to reject the refund?

The Court ruled:

“The petitioners have not claimed any refund of input tax credit on deemed export supply. The respondents have lost sight of the fact that the petitioners are exporters of finished goods… and therefore, not governed by para no. 2.2 of the circular.”

Further, the Court stated:

“Had the suppliers claimed the refund as deemed exporters, only then would the clarificatory Circular dated 06.07.2022 be applicable.”

The Court declined to rule on the issue of retrospective applicability of the circular, noting it did not arise in this case.

3. Was the review under Section 107(2) justified?

4. Could recovery proceedings under Section 73 be initiated without appealing the original refund orders?

The Court treated both questions as academic and left them open for decision in future cases, since refund entitlement was upheld on merits. The Court stated:

“We are not dealing with the contentions raised and decisions relied upon by both sides… and the same are kept open.”

The Court analysed all relevant provisions and concluded:

• Section 147 and Section 2(39) of the CGST Act only define deemed exports where goods do not leave India.

• Since the petitioners exported goods outside India, they did not qualify as recipients of deemed exports.

• The suppliers did not comply with Circular 14/14/2017, nor claimed refund under deemed export notifications.

• The claim was therefore rightly made under Rule 89(4) and Section 54(3), not Rule 89(4A).

The Court emphasised:

“The reasonings assigned by the appellate authority for applicability of Rule 89(4A) are contrary to the provisions of the GST Act, especially Section 2(39).”

Orders Passed by the Court:

1. Refund recovery orders and notices across all five Special Civil Applications were quashed and set aside.

2. Respondents directed to pay refund amounts to petitioners within 12 weeks.

3. Constitutional challenge to Circular 172/2022 and issue of retrospective applicability not decided, left open for adjudication in future.The Gujarat High Court has drawn a clear line between actual exporters and recipients of deemed export supplies, and ruled that mere EOU status does not change the classification of supply under the GST law. It reiterated that:

“Petitioners are exporters of goods and not deemed export recipients; hence, they are entitled to refund of unutilised input tax credit under Rule 89(4).”

By insulating legitimate exporters from erroneous classification and withdrawal of granted refunds based on retrospective or misapplied circulars, the Court has offered much-needed clarity and relief under the GST regime

Date of Decision: 13 November 2025