Zero-Rated Exports vs Deemed Exports under GST: Scope of ITC Refunds and Circular 172/2022 – Commentary on Shah Paperplast Industries Ltd. v. Union of India (Gujarat High Court, 13 November 2025)

Zero-Rated Exports vs Deemed Exports under GST: Scope of ITC Refunds and Circular 172/2022 – Commentary on Shah Paperplast Industries Ltd. v. Union of India (Gujarat High Court, 13 November 2025)

I. Introduction

The Gujarat High Court’s decision in Shah Paperplast Industries Ltd. & Anr. v. Union of India & Ors., C/SCA/18892/2023 (with connected petitions), resolves a significant controversy under the Goods and Services Tax (GST) regime: whether a 100% Export Oriented Unit (EOU) which exports goods without payment of tax under a Letter of Undertaking (LUT) can be denied refund of unutilised input tax credit (ITC) on the footing that the inputs were supplied under the “deemed export” mechanism, and whether CBIC Circular No. 172/04/2022-GST dated 06.07.2022 (para 2.2) can be used to curtail such refunds.

The petitions arose from attempts by the tax department to:

  • re-characterise supplies of raw materials made to the petitioners (100% EOUs) as “deemed exports” under Notification No. 48/2017-Central Tax, and
  • deny or recover refunds of unutilised ITC on export under Rule 89(4) of the CGST Rules, by invoking para 2.2 of Circular No. 172/04/2022-GST and insisting that the correct route was Rule 89(4A) / proviso to Rule 89(1).

The Court ultimately:

  • held that the petitioners are exporters making zero-rated supplies, not “deemed exporters” or recipients of deemed exports,
  • clarified that para 2.2 of Circular 172/2022 applies only to recipients of supplies actually treated and processed as deemed exports,
  • held that refund under Rule 89(4) read with Section 54(3) is available in such situations, and
  • quashed multiple orders withdrawing or denying refunds.

Crucially, while the petitioners challenged the vires and retrospectivity of para 2.2 of the Circular, the Court did not pronounce on its validity in the abstract. Instead, it confined itself to holding that the circular simply does not apply on the present facts. Questions about:

  • whether Circular 172/2022 is ultra vires, or retrospective, and
  • whether erroneous refunds can be recovered through Section 73/74 without first appealing the refund order under Section 107,

were deliberately left open for decision in an appropriate case.

II. Overview of Facts and Procedural History

1. Parties and Business Profile

The lead petitioner, Shah Paperplast Industries Ltd., is a 100% Export Oriented Undertaking (EOU) engaged in the manufacture and export of tissue paper, wrapping paper, disposable plastic products, etc. It purchases raw materials from GST-registered domestic suppliers on payment of GST, manufactures finished goods, and exports these goods without payment of tax under a LUT, thereby making “zero-rated supplies” under Section 16 of the IGST Act.

2. Legal Basis for Refund Claims

The petitioners claimed refunds on two conceptual bases:

  • Zero-rated exports without payment of tax: under Section 54(3) CGST Act read with Section 16(3) IGST Act and Rule 89(4) CGST Rules, as refund of unutilised ITC accumulated on inputs and input services used in making exports without payment of IGST.
  • Non-availment of deemed export benefits: although supplies to a 100% EOU are eligible to be notified as “deemed exports” under Section 147 CGST Act and Notification No. 48/2017-Central Tax, neither the suppliers nor the petitioners had availed that route or followed its special procedure (Circular No. 14/14/2017-GST). Supplies were treated as normal B2B taxable supplies with GST charged and ITC taken in the usual way.

3. Key Timeline

  • June 2022: Shah Paperplast filed a refund application dated 11.06.2022 for April 2022, under Section 54(3) read with Rule 89(4), as refund of unutilised ITC on exports without payment of tax. An undertaking was given that:
    • the petitioners had not procured inputs under the deemed export mechanism of Notification No. 48/2017 & Circular 14/2017, and
    • suppliers had not claimed deemed export refund.
  • 02.07.2022: Provisional refund for April 2022 was granted.
  • 06.07.2022: CBIC issued Circular No. 172/04/2022-GST. Para 2.2 clarified that ITC of tax paid on supplies regarded as deemed exports, availed by the recipient for claiming refund of such tax, is not to be included in “Net ITC” for computation of refund under Rule 89(4) or Rule 89(5).
  • 20.07.2022: Show cause notice issued proposing to withdraw refund for April 2022, relying on Circular 172/2022 and contending that tax paid on deemed exports is not “ITC” for refund under Rule 89(4)/(5).
  • 18.08.2022: Adjudicating authority passed an order withdrawing refund of Rs. 28,40,959/- for April 2022.
  • 29.12.2022: Principal Commissioner, under Section 107(2) CGST Act, reviewed and directed appeal against earlier refund orders (for Dec 2021–Mar 2022), treating them as erroneous since refunds were sanctioned under Rule 89(4) instead of Rule 89(4A) / proviso to Rule 89(1).
  • 06.09.2023: Appellate authority allowed departmental appeal and ordered withdrawal of refunds granted for Dec 2021–Mar 2022 with interest.

4. Connected Petitions

The core legal issue was common to several petitions:

  • SCA No. 17246 of 2022: challenge to Circular 172/2022 and withdrawal of refund for April 2022.
  • SCA No. 18892 of 2023 (lead matter): challenge to appellate order dated 06.09.2023 withdrawing refunds for Dec 2021–Mar 2022.
  • SCA No. 17080 of 2023: challenge to rejection of refund for May 2022.
  • SCA No. 96 of 2025: challenge to show cause notice and order withdrawing refunds for June 2018–May 2019.
  • SCA No. 8319 of 2025 (Kumar World Trade Pvt. Ltd.): challenge to rejection of refund for Aug 2022–Mar 2023 on the same legal ground.

In all matters, the department’s core stance was that, because the petitioners were 100% EOUs, supplies of raw materials to them should be treated as deemed exports, and thus:

  • refund ought to have been claimed under Rule 89(4A) / proviso to Rule 89(1) as deemed export refund, and
  • ITC on such “deemed export” supplies could not form part of “Net ITC” for the export refund formula under Rule 89(4)/(5) following Circular 172/2022.

III. Summary of the Judgment

1. Legal Questions Identified

The Court framed four principal questions (para 46):

  1. Whether the refund claim filed by the petitioners was rightly disallowed on the ground that it was not filed under Rule 89(4A) of the CGST Rules?
  2. Whether the refund could be rejected by applying para 2.2 of Circular 172/04/2022-GST retrospectively?
  3. Whether the department was justified in invoking Section 107(2) (review) to direct appeals against refund sanction orders?
  4. Whether the department was justified in issuing notices under Section 73 for recovery of refund without first challenging the refund-sanctioning orders?

2. Core Holding on Refund Entitlement

The Court held:

  • The petitioners are exporters making zero-rated supplies under Section 16(1) of the IGST Act. Their inward supplies were normal taxable supplies with GST charged, not processed as “deemed exports” under Notification 48/2017 and Circular 14/2017 (no Form A, no endorsed invoices, no deemed export procedure).
  • As a result:
    • the petitioners are not “recipients of deemed exports”,
    • they have not claimed any refund on account of deemed export supplies, and
    • their refund falls under Section 54(3) CGST Act read with Rule 89(4) (refund of unutilised ITC on zero-rated exports without payment of tax).
  • Rule 89(4A) applies only when the supplier has availed benefit of Notification 48/2017 as a deemed exporter. Since that did not occur here, Rule 89(4A) is inapplicable.
  • Para 2.2 of Circular 172/2022 only clarifies the legal position for recipients of supplies actually treated as deemed exports and claiming refund of such tax. It has no application to exporters like the petitioners who have not claimed any deemed export refund.

Accordingly, the Court:

  • Allowed all petitions on merits as regards the substantive refund entitlement,
  • Quashed all orders and notices withdrawing or rejecting the refunds (paras 59–59.5), and
  • Directed the department to pay the refunds as per the claims within 12 weeks (para 59.6).

3. Questions Left Open

Because it found the petitioners substantively entitled to the refunds, the Court held that:

  • the issue of retrospective applicability or vires of para 2.2 of Circular 172/2022 was not required to be decided in this case (para 57), and
  • the controversies surrounding the validity of recovery through Section 73/74 without appeal and the scope of review under Section 107(2) were “academic” in this case and are expressly kept open (para 58).

IV. Legal Analysis

A. Statutory and Regulatory Framework

1. Deemed Exports vs Zero-Rated Supplies

The Court’s starting point was the basic structural difference between:

  • “Deemed exports” under Section 2(39) read with Section 147 CGST Act and Notification 48/2017; and
  • “Zero-rated supplies” under Section 16 IGST Act.

Key statutory texts:

  • Deemed exports (Section 2(39), Section 147 CGST Act):
    “Deemed exports” means such supplies of goods as may be notified under section 147.
    Section 147 empowers Government to notify certain supplies as deemed exports where:
    • goods supplied do not leave India, and
    • payment is received in INR or convertible foreign exchange,
    • if such goods are manufactured in India.
  • Zero-rated supply (Section 16 IGST Act):
    “Zero rated supply” means:
    • export of goods or services or both; or
    • specified supplies to SEZs.
    A registered person making zero-rated supply is eligible to claim refund of unutilised ITC on supplies without payment of IGST under Section 54 CGST Act and rules.

Thus, in the statutory design:

  • “Deemed exports” are a fiction for domestic supplies of goods that do not leave India, but are treated as exports for certain benefits (such as refund of tax to supplier or recipient).
  • “Zero-rated supplies” cover actual exports where goods leave India (and some SEZ supplies). Refund here is of unutilised ITC accumulated on account of zero-rated output supplied without tax.

2. ITC and Refund for Zero-Rated Exports

Under Section 16(1) CGST Act:

Every registered person is entitled to take credit of input tax charged on supplies to him used in the course or furtherance of business; such amount is credited to his electronic credit ledger.

Under Section 54(3) CGST Act:

  • a registered person may claim refund of unutilised ITC at the end of a tax period,
  • subject to specific conditions and restrictions (notably the provisos).

Rule 89(4) of the CGST Rules provides the formula for refund of ITC in case of zero-rated supplies made without payment of tax:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover

Where:

  • Net ITC means ITC availed on inputs and input services during the relevant period.
  • “Turnover of zero-rated supply of goods” and “Adjusted Total Turnover” are defined within the rule.

3. Deemed Export Mechanism for EOUs – Notification 48/2017 & Circular 14/2017

Notification No. 48/2017–Central Tax (18.10.2017) notifies certain supplies as deemed exports, including:

  • “Supply of goods by a registered person to Export Oriented Unit” (S. No. 3 of the Table).

Circular No. 14/14/2017-GST (06.11.2017) prescribes a specific procedure and safeguards for treating supplies to EOUs as deemed exports, including:

  • EOU giving prior intimation in Form A to supplier and jurisdictional officers;
  • supplier issuing tax invoice with tax paid;
  • EOU endorsing the tax invoice and sending copies to supplier and officers; and
  • maintenance of digital records in a specified format.

Rule 89(1) (as amended) and its third proviso allow either:

  • the recipient of deemed export supplies, or
  • the supplier of deemed export supplies,

to claim refund of the tax paid thereon, provided the recipient does not avail ITC on such supplies.

4. Rule 89(4A) – A Narrow, Now-Omitted Provision

Rule 89(4A) (as it stood during the relevant time) provided:

In the case of supplies received on which the supplier has availed the benefit of Notification No. 48/2017-Central Tax, refund of ITC availed in respect of other inputs or input services used in making zero-rated supplies shall be granted.

This provision was clearly designed for the specific scenario where:

  • the supplier of inputs to an exporter has claimed benefit of deemed exports under Notification 48/2017, and
  • the exporter (recipient) then seeks refund of ITC on other inputs and input services used in zero-rated supplies.

Significantly, the judgment notes that Rule 89(4A) has been omitted by the Central Goods and Services Tax (Second Amendment) Rules, 2024 with effect from 08.10.2024 (para 54), though this omission does not drive the result in the present case (which concerns pre-omission periods).

5. Circular No. 172/04/2022-GST – Para 2.2

The contentious paragraph states:

“The ITC of tax paid on deemed export supplies, allowed to the recipients for claiming refund of such tax paid, is not ITC in terms of the provisions of Chapter V of the CGST Act, 2017. Therefore, such ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports 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) or on account of inverted rated structure under rule 89(5)...”

This is a clarification on a narrow question:

  • When a recipient of deemed exports has already availed ITC of tax paid on such supplies solely to claim deemed export refund of that tax, should that ITC be included in “Net ITC” when computing refund under Rule 89(4)/(5)?

The answer given by the circular is “no”: such “ITC” is, in effect, a refund-facilitating construct, not part of the ordinary pool of ITC under Chapter V CGST Act.

B. Court’s Application of the Framework to the Facts

1. Petitioners Are Exporters, Not Deemed Export Recipients

The Court carefully distinguished:

  • Suppliers of raw materials to Shah Paperplast, who could have treated their supplies as deemed exports under Notification 48/2017 but did not; from
  • Shah Paperplast itself, which is the exporter of finished goods (zero-rated supply) and never invoked deemed export benefits.

Key factual findings (paras 48–51, 54–55):

  • Suppliers charged GST on invoices and treated the transactions as regular B2B supplies.
  • Suppliers did not follow the deemed export procedure (no Form A, no endorsed invoices, no records as per Circular 14/2017).
  • Suppliers did not claim any deemed export refund under Notification 48/2017.
  • Shah Paperplast exported the finished goods without payment of tax under LUT (Section 16(3) IGST Act, Rule 89(4)) and claimed refund of unutilised ITC accordingly.

Therefore:

  • The petitioner-company does not fall within the definition of “deemed exporter”, nor is it a “recipient of deemed exports” in the sense contemplated by Notification 48/2017 and Circular 14/2017.
  • Their case is a straightforward one of zero-rated exports without payment of tax, attracting Section 54(3) and Rule 89(4).

2. Inapplicability of Rule 89(4A)

The department argued that, as a 100% EOU, Shah Paperplast was required to:

  • treat inputs received as deemed exports, and
  • claim refund under Rule 89(4A) or the third proviso to Rule 89(1), not under Rule 89(4).

The Court rejected this reasoning:

  • Rule 89(4A) is expressly tied to cases where the supplier has availed the benefit of Notification 48/2017.
  • On the facts, no supplier had availed such benefit, nor had they adopted the procedural framework of Circular 14/2017.
  • Therefore, Rule 89(4A) is simply irrelevant to the petitioners’ refund claims (para 54).

This is an important clarification: mere EOU status does not automatically convert all inward supplies into “deemed exports” for GST purposes. Deemed export treatment is conditional and procedural; if not invoked by the supplier/recipient in the proper manner, supplies remain regular domestic taxable supplies.

3. Narrow Scope of Para 2.2 of Circular 172/2022

Once the Court determined that the petitioners had not claimed any refund of ITC on deemed export supplies, it became clear that para 2.2 of Circular 172/2022 could not apply.

The Court reasoned (paras 52–54):

  • Para 2.2 answers a specific question: whether ITC availed by a recipient of deemed exports, only for purposes of claiming refund of tax paid on deemed export supplies, is to be included in “Net ITC” for further refund under Rule 89(4)/(5).
  • It clarifies that such “ITC” is not part of the ordinary ITC pool under Chapter V, and hence excluded from “Net ITC” in the formula.
  • However, Shah Paperplast:
    • did not receive supplies under the deemed export route,
    • did not claim any deemed export refund, and
    • claimed refund only of unutilised ITC on exports under Rule 89(4).
  • Accordingly, para 2.2 of Circular 172/2022 does not govern their refund claims at all.

The Court thus avoided any need to strike down or read down the circular; instead, it confined the circular to its proper factual and legal context and held the department’s reliance on it to be a misapplication.

4. Result on Question 1 (Correct Rule for Refund)

On Question 1, the Court’s answer was categorical (para 56):

The respondents were not justified in disallowing the refund claim of the petitioners on the ground that the claim was not filed under Rule 89(4A). As exporters of goods who had not claimed deemed export benefits, the petitioners were entitled to refunds under Rule 89(1)/89(4).

5. Result on Question 2 (Retrospectivity and Vires of Circular 172/2022)

Because the Court found that para 2.2 of the circular is factually and legally inapplicable to the petitioners:

  • their challenge to the vires of para 2.2,
  • and the contention that it cannot operate retrospectively,

were both held to be unnecessary to decide in this case (para 57). Those issues remain open.

6. Result on Questions 3 and 4 (Review under Section 107(2) and Recovery under Section 73/74)

The petitioners contended that:

  • once an adjudicating authority has passed a refund-sanctioning order, the only way to disturb it is through the appeal mechanism in Section 107/108, and
  • Section 73 (erroneous refund, non/short payment) cannot be used to indirectly upset a quasi-judicial refund order without an appeal.

The department, relying on Grasim Industries and other precedents, asserted that recovery under Section 73/74 is an independent statutory remedy and does not depend on an appeal against the refund order.

The Court, however, explicitly held that, given its finding on the merits (that refund ought to be allowed), it was unnecessary to decide:

  • whether the invocation of Section 107(2) was proper, or
  • whether notices under Section 73/74 can be issued to recover an erroneous refund without appealing the refund order.

These questions were declared “academic” in the present matters and kept open for an appropriate future case (para 58).

C. Precedents Cited and Their (Non-)Application

Both sides cited an array of precedents. The High Court’s final decision, however, rests principally on the construction of the GST statute, rules, and circulars, rather than on extended reliance on case law. Still, understanding the cited precedents helps place the judgment in context.

1. Petitioners’ Authorities

Broadly:

  • Priya Blue, ITC Ltd. and similar cases deal with when an assessment or self-assessment order can be challenged or bypassed for purposes of refund or reassessment.
  • Eicher Motors and Jayam & Co. discuss the nature of ITC as a statutory concession and limits on retrospective curtailment.
  • VKC Footsteps is particularly important in the GST context; the Supreme Court held that:
    • refund of unutilised ITC is purely statutory, not a constitutional right;
    • the legislature can restrict refund to cases/ITC categories specified in Section 54(3) and its provisos; and
    • the proviso operates as a restriction, not an independent eligibility criterion.

The Gujarat High Court quotes VKC (para 27 of the judgment) mainly to acknowledge the principle that:

  • refund is governed by statute, and
  • courts should apply the legislative scheme as enacted, without expanding refund entitlement on equitable or constitutional grounds beyond the statute.

In Shah Paperplast, the petitioners’ core argument was statutory: the department had misread the GST Act and rules by:

  • erroneously treating them as deemed export recipients under Notification 48/2017, and
  • misapplying Circular 172/2022.

The Court agreed on these statutory grounds and did not rely on constitutional arguments about refund rights.

2. Department’s Authorities

  • Grasim Industries Ltd. v. Commissioner of Central Excise, (2011) 14 SCC 685;
  • Asian Paints (India) Ltd. v. CCE, 2002 (142) ELT 522 (SC);
  • M/s Premier Cotton Textiles v. CCE, 2019 (368) ELT 465 (Madras);
  • WPIL Ltd. Ghaziabad v. CCE, Meerut, Civil Appeal Nos. 4228–4229 of 1999 (SC).

These authorities generally support the view that:

  • recovery provisions like Section 11A (Central Excise Act) – analogous to Section 73 CGST Act – operate independently of appellate/review provisions like Section 35E (analogous to Section 108 CGST Act); and
  • the department can issue show cause notices to recover erroneous refunds even in the absence of an appeal.

In the present case, these precedents were cited to defend:

  • the department’s reliance on Section 73/74 to recover refunds, and
  • the use of Section 107(2) review to direct appeals against refund orders.

However, because the Court allowed the refunds on merits (as a matter of correct classification of supplies and correct refund route), it did not pronounce on the extent to which these principles apply under GST. Their full application remains a live issue for future cases.

V. Complex Concepts Simplified

1. “Deemed Export” vs “Export” (Zero-Rated Supply)

  • Export (Zero-rated supply):
    • Goods physically leave India and are supplied to a foreign buyer.
    • Covered by Section 16(1)(a) IGST Act.
    • Supplier can export:
      • with payment of IGST and claim refund of that IGST, or
      • without payment of IGST under LUT/bond and claim refund of unutilised ITC.
  • Deemed export:
    • Goods do not leave India; supply is domestic.
    • Government “deems” specified supplies (e.g. supplies to EOUs) as exports for limited fiscal benefits like refund.
    • Covered by Section 147 CGST Act and notified via Notification 48/2017.
    • Refund is of tax paid on the deemed export supply, claimed either by:
      • the supplier, or
      • the recipient, provided it does not take ITC.

A supply generally cannot be treated as both a deemed export and a regular domestic taxable supply with ITC. You must choose the route and follow the prescribed procedure.

2. Input Tax Credit (ITC) and “Net ITC”

  • Input Tax Credit (ITC):
    • Credit of GST charged on inputs, input services, and in some cases capital goods, available to a registered person on satisfying conditions in Section 16 CGST Act.
    • Credited to the electronic credit ledger and can be used to pay output tax.
  • Unutilised ITC:
    • ITC that remains unused after offsetting output tax liabilities in a tax period.
    • Can be refunded in limited situations (e.g., zero-rated supplies without payment of tax, inverted duty structure) under Section 54(3).
  • “Net ITC” in Rule 89(4):
    • ITC availed on inputs and input services during the relevant period.
    • Used in the formula to compute the maximum refundable ITC attributable to zero-rated supplies.

Para 2.2 of Circular 172/2022 essentially says: “ITC” that is notionally allowed only for purposes of claiming refund of tax on deemed exports is not part of the normal ITC pool under Chapter V and cannot be included again in ‘Net ITC’ for another round of refund under Rule 89(4)/(5).

3. 100% Export Oriented Unit (EOU) under GST

An EOU is a unit approved under the Foreign Trade Policy that is obligated to export its entire production (subject to some relaxations). Under the pre-GST regime, EOUs enjoyed various central excise/customs concessions.

Under GST:

  • EOUs are generally treated like ordinary registered persons for GST purposes.
  • They are not automatically entitled to special ITC or refund treatment unless a specific notification or circular (such as Notification 48/2017 for deemed exports) is invoked.
  • Shah Paperplast confirms that being a 100% EOU does not by itself:
    • convert all inward supplies into “deemed exports”, or
    • compel use of the deemed export refund route.

4. Clarificatory Circulars and Retrospective Application

In general tax jurisprudence:

  • A clarificatory circular explains the department’s interpretation of existing law; it is often regarded as having retrospective effect to the extent it states what the law “always was”.
  • A circular that introduces a new substantive restriction not found in the Act or Rules may be struck down as ultra vires and cannot ordinarily be retrospective.

In Shah Paperplast, the department argued that Circular 172/2022 is purely clarificatory. The Court:

  • did not decide this characterization definitively,
  • held instead that, properly understood, para 2.2 does not apply to the petitioners’ situation at all, rendering the retrospective/prospective debate unnecessary in this case.

VI. Impact and Significance

1. Immediate Practical Impact

For the petitioners (Shah Paperplast and Kumar World Trade), the decision:

  • restores substantial refunds of unutilised ITC for multiple periods (including 2018–2019 and 2021–2023),
  • quashes show cause notices and appellate orders withdrawing/refusing such refunds, and
  • mandates payment of refunds within 12 weeks.

2. Clarification for EOUs and Exporters Generally

The judgment is significant for all exporters, especially EOUs, because it clarifies:

  • EOU status does not automatically trigger deemed export treatment. Deemed export benefits are optional and procedure-based.
  • If suppliers do not treat their supplies as deemed exports (i.e., they do not follow Notification 48/2017 and Circular 14/2017), then:
    • such inward supplies to EOUs remain ordinary domestic taxable supplies with ITC, and
    • the EOU, as exporter, can legitimately claim refund of unutilised ITC under Rule 89(4) for zero-rated exports without payment of tax.
  • Para 2.2 of Circular 172/2022 cannot be used to deny export ITC refunds by retroactively reclassifying ordinary B2B supplies as deemed exports where no such treatment was actually adopted.

3. Limits on Departmental Reliance on Circular 172/2022

Post-Circular 172/2022, some field formations had invoked para 2.2 to:

  • deny or reduce ITC-based export refunds (Rule 89(4)), and
  • argue that ITC on inputs supplied to EOUs can never form part of “Net ITC” for Rule 89(4)/(5) if those supplies are “eligible” to be deemed exports.

The Gujarat High Court’s interpretation significantly restrains this approach:

  • Para 2.2 applies only where:
    • supplies are actually treated as deemed exports (Notification 48/2017 + Circular 14/2017 followed), and
    • recipient avails ITC solely for claiming deemed export refund of that tax.
  • It does not apply simply because:
    • recipient is a 100% EOU, or
    • supplies could have been treated as deemed exports.

4. Future Litigation on Recovery Mechanisms

Because the Court left open the questions relating to:

  • the interplay between Section 73/74 (recovery of erroneous refunds) and the appellate/review hierarchy (Sections 107/108), and
  • the extent to which refund-sanctioning orders can be indirectly revisited via Section 73/74 without appeal,

those issues remain fertile ground for future litigation.

Given the Supreme Court’s approach in Grasim Industries and related excise cases, and the explicit reservation of these issues in Shah Paperplast, future courts will have to carefully adapt those principles to the GST text and structure. The Gujarat High Court’s restraint ensures that the current decision cannot be read as foreclosing such debates.

5. Alignment with Supreme Court’s Approach in VKC Footsteps

The decision is consistent with the Supreme Court’s stance in VKC Footsteps that refund is a creature of statute and courts must operate within the legislative framework. Here:

  • The High Court did not expand refund entitlement beyond Section 54(3) & Rule 89(4);
  • It simply ensured that the statutory entitlement to refund for zero-rated supplies is not negated by a misapplication of a circular designed for a different situation (deemed exports).

In that sense, the judgment reinforces a key principle: circulars cannot be used to rewrite or distort the statutory scheme, especially to the detriment of taxpayers whose facts fall outside the circular’s intended scope.

VII. Conclusion

Shah Paperplast Industries Ltd. v. Union of India is an important clarification of how the GST framework handles:

  • the distinction between zero-rated exports and deemed exports,
  • the proper use of Rule 89(4) versus Rule 89(4A), and
  • the limited scope of para 2.2 of Circular 172/04/2022-GST.

The principal takeaways are:

  1. EOUs remain ordinary exporters under GST unless they explicitly opt into the deemed export regime. Their inward supplies are not automatically “deemed exports”.
  2. Rule 89(4A) is a special provision applicable only where the supplier has availed Notification 48/2017. Absent such availing and procedure, exporters are entitled to claim refunds of unutilised ITC under Rule 89(4).
  3. Para 2.2 of Circular 172/2022 is confined to the narrow scenario of recipients of deemed exports who use ITC solely to claim deemed export refund. It cannot be stretched to deny ordinary export ITC refunds.
  4. Refund-sanctioning orders, once passed, cannot be undermined by mischaracterising supplies ex post facto as deemed exports merely because the recipient is a 100% EOU.
  5. The broader questions of:
    • whether Circular 172/2022 is ultra vires or retrospective, and
    • how Sections 73/74 interact with the appeal/review mechanism for erroneous refunds,
    remain open for authoritative determination in future cases.

Within the State of Gujarat, this judgment will guide departmental practice and taxpayer strategy on export refunds involving EOUs and potential deemed export situations. Nationally, while not binding outside Gujarat, it provides a well-reasoned template for other High Courts facing similar disputes and may help restore uniformity and predictability in the administration of ITC refunds for exporters under the GST regime.

Case Details

Year: 2025
Court: Gujarat High Court

Judge(s)

HONOURABLE MR. JUSTICE PRANAV TRIVEDI

Advocates

UCHIT N SHETH(7336) MS HETVI H SANCHETI(5618)

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