GST Refund Update: SEZ Imports and PDS Food Packs to Receive Retroactive Cess Refunds

The Centre has announced a refund of the compensation cess levied on imported goods under the Goods and Services Tax (GST) for businesses operating in special economic zones (SEZs) and their developers, effective from 2017. Additionally, the Central Board of Indirect Tax and Customs will initiate refunds for the 5% GST collected on food packages designated for the public distribution system (PDS), amounting to approximately ₹6,500 crore, as per sources familiar with the matter.

This decision follows a recent ruling by the GST Council to retroactively exempt SEZ units and developers from imports starting from July 1, 2017, the inception of GST. “The collected cess will be refunded, and any notices previously issued to SEZ units or developers will be withdrawn,” a senior official informed ET. Refunds are anticipated to be disbursed within the next six months, the official added.

The GST Council’s decision carries particular significance in light of a January judgment by the Andhra Pradesh High Court that had previously negated such an exemption. The official further clarified that the National Agricultural Cooperative Marketing Federation of India Ltd (NAFED), a prominent cooperative organization, will also receive refunds for GST paid on food packs destined for PDS supply.

“The council has affirmed that no GST should apply to food supplies designated for PDS distribution, and refunds will be processed promptly,” the official emphasized. In its 47th meeting in July 2022, the GST Council had imposed a 5% GST on prepackaged and pre-labelled retail packs like wheat and millet rice, aiming to curb misuse of exemptions for unbranded pre-packaged food items. However, there were instances where field offices issued notices to suppliers of wheat, rice, wheat flour, and pulses meant for PDS.