Facts of the Case

M/s Jaysons Exports, a partnership firm registered under GST, was engaged in the export of goods including VT pumps, spindle, flange, rubber bush nitrile and impeller to overseas buyers situated in Morocco and Algeria.

During July and August 2017, the petitioner exported goods outside India under three shipping bills. Since exports of goods constitute “zero-rated supply” under Section 16 of the Integrated Goods and Services Tax Act, 2017, the petitioner adopted the route of exporting goods on payment of IGST and claiming refund of the tax so paid.

The petitioner paid aggregate IGST of ₹2,26,087 in relation to the three export shipping bills. The shipping bill-wise IGST amounts recorded in the judgment were:

  • Shipping Bill No. 7667573 dated 28 July 2017 – IGST paid: ₹17,424
  • Shipping Bill No. 7928755 dated 10 August 2017 – IGST paid: ₹1,08,999
  • Shipping Bill No. 7975605 dated 11 August 2017 – IGST paid: ₹99,664

The total IGST paid amounted to ₹2,26,087. The detailed export and drawback particulars are reflected in the table appearing on page 6 of the judgment.

According to the petitioner, Section 16 of the IGST Act read with Section 54 of the CGST Act and Rule 96 of the CGST Rules entitled it to refund of IGST paid on the exported goods. Under Rule 96, the shipping bill filed by an exporter is deemed to be an application for refund of integrated tax paid on goods exported out of India, subject to satisfaction of the prescribed requirements.

Despite the exports having taken place in July and August 2017, the IGST refund remained unpaid. The petitioner approached the respondent authorities and sought sanction of the refund. During personal visits, the petitioner’s Customs House Agent was orally informed that the refund had not been sanctioned because the petitioner had claimed drawback by punching “A” instead of “B” in the shipping bills.

The petitioner thereafter submitted written representations dated 10 May 2022 and 18 May 2022 seeking release of the refund. As the refund was still not paid, the petitioner approached the Gujarat High Court.

Issues Involved

The principal issues before the High Court were:

  1. Whether the petitioner was entitled to refund of ₹2,26,087 of IGST paid on zero-rated export supplies under Section 16(3)(b) of the IGST Act read with Section 54 of the CGST Act and Rule 96 of the CGST Rules.
  2. Whether IGST refund could legally be withheld merely because the petitioner had selected “Category A” instead of “Category B” while claiming duty drawback in the shipping bills.
  3. Whether the departmental reliance upon Circular No. 37/2018-Customs dated 9 October 2018 and the relevant drawback notifications could override or restrict the statutory entitlement to refund under Rule 96.
  4. Whether the subsequent Circular dated 9 October 2018 could justify denial of IGST refund in respect of exports made earlier, during July and August 2017.
  5. Whether the absence of an in-built mechanism in the Customs ICES/EDI system could constitute a valid legal ground for withholding an otherwise admissible IGST refund.
  6. Whether the petitioner was entitled to interest on the delayed refund and, if so, from which date and at what rate.

Petitioner’s Arguments

The petitioner argued that there was no statutory embargo against claiming IGST refund merely because drawback had been claimed by punching “A” instead of “B” in the shipping bills.

It was specifically contended that the applicable drawback rates were 2% and 1.5%, depending upon the exported product, irrespective of whether “A” or “B” was selected. Therefore, according to the petitioner, no actual higher or additional drawback benefit had been received.

The petitioner submitted that the exports constituted zero-rated supplies under Section 16 of the IGST Act. Under Section 16(3)(b), the petitioner was entitled to export goods on payment of integrated tax and thereafter claim refund of such tax in accordance with Section 54 of the CGST Act.

Reliance was placed on Rule 96 of the CGST Rules to contend that the shipping bill itself is deemed to be an application for refund of IGST paid on exported goods. Since the relevant export documentation had been generated and valid returns had been furnished, no separate formal refund application was required.

The petitioner further argued that none of the statutory circumstances permitting withholding of refund under Section 54 and Rule 96 existed. No proper withholding intimation or prescribed order had been issued.

Strong reliance was placed upon the Gujarat High Court decision in Amit Cotton Industries vs Principal Commissioner of Customs, where the Court had examined a similar controversy involving Circular No. 37/2018-Customs and held that an executive circular could not operate contrary to statutory provisions, particularly Rule 96.

For the claim of interest, the petitioner also relied upon related Gujarat High Court decisions including:

  • M/s Aim Worldwide Pvt. Ltd. vs Union of India
  • M/s Vimla Food Products vs Union of India
  • M/s Swastik International vs Union of India
  • M/s Sri APP Enterprises vs Principal Commissioner of Customs

The petitioner accordingly sought refund with interest, contending that the amount had been unlawfully withheld for a considerable period.

Respondents’ Arguments

The respondents submitted that processing of IGST refund claims is an automated process undertaken through the Customs EDI System. The system validates shipping bill data available in ICES against GST return data transmitted through GSTN, and upon successful matching, the refund is electronically credited to the exporter’s registered bank account.

According to the respondents, the petitioner had selected “Category A” instead of “Category B” while filing the shipping bills. The EDI System reflected that the petitioner had claimed the higher drawback category by adding suffix “A” to the drawback serial number.

The respondents relied upon:

  • Notification No. 131/2016-Customs (N.T.) dated 31 October 2016
  • Notification No. 59/2017-Customs (N.T.) dated 29 June 2017
  • Circular No. 37/2018-Customs dated 9 October 2018

It was contended that granting IGST refund after availing higher duty drawback could result in a double benefit, since the higher drawback allegedly reflected customs, central excise and service tax elements, while central excise and service tax had subsequently been subsumed into GST.

The respondents further stated that even where the higher and lower drawback rates were identical, the Customs ICES System did not contain an in-built mechanism to process IGST refund where “Category A” had been selected. Therefore, the system-driven refund process had withheld the petitioner’s refund.

Court’s Findings

The Gujarat High Court held that it was an admitted position that the petitioner had exported goods during July and August 2017 after paying integrated tax. Since the goods were exported outside India, they constituted zero-rated supplies under Section 16 of the IGST Act, 2017.

The Court examined the combined statutory framework of:

  • Section 16 of the IGST Act, 2017;
  • Section 54 of the CGST Act, 2017; and
  • Rule 96 of the CGST Rules, 2017.

On a conjoint reading of these provisions, the Court found that the petitioner was entitled to receive refund of IGST paid at the time of export.

The High Court rejected the respondents’ stand that refund could be withheld merely because the petitioner had claimed the higher drawback category. It held that reliance upon Circular No. 37/2018-Customs and the relevant drawback notifications was not tenable in the circumstances of the case.

The Court noted that Circular No. 37/2018-Customs was issued subsequent to the petitioner’s exports, whereas the exports had taken place during July and August 2017.

The High Court held that the facts were squarely covered by Amit Cotton Industries vs Principal Commissioner of Customs. In that precedent, it had been held that a circular contrary to statutory rules could not have legal force and that Rule 96 clearly governed refund of IGST paid on exported goods.

The Court further relied upon the Supreme Court principles in:

Commissioner of Central Excise, Bolpur vs Ratan Melting and Wire Industries – for the proposition that circulars and instructions represent executive understanding of statutory provisions and a circular contrary to statutory provisions has no existence in law.

J.K. Lakshmi Cement Ltd. vs Commercial Tax Officer, Pali – for the principle that circulars may facilitate proper administration of fiscal law but cannot alter statutory provisions to the detriment of an assessee.

The High Court ultimately found that the petitioner, being a registered exporter, was entitled to the statutory benefit of IGST refund under Section 16(3)(b) of the IGST Act read with Section 54 of the CGST Act and Rule 96 of the CGST Rules.

Court Order

The writ petition was allowed.

The Gujarat High Court directed the respondent authority to:

  1. Immediately sanction refund of ₹2,26,087 towards IGST paid in respect of goods exported as zero-rated supplies under the relevant shipping bills; and
  2. Pay interest at 9% per annum from the dates of filing the shipping bills until the actual date of realisation of the refund amount.

The Rule was made absolute to that extent, with no order as to costs.

Important Clarification

The judgment provides an important clarification that a technical selection in the shipping bill or limitation in the Customs ICES/EDI system cannot, by itself, defeat a substantive statutory entitlement to IGST refund where the exporter otherwise satisfies the requirements of the IGST Act, CGST Act and CGST Rules.

The Court’s reasoning also reinforces that:

  • A shipping bill can operate as a deemed refund application under Rule 96.
  • Refund withholding must have support in the statutory framework.
  • An executive circular cannot override or run contrary to statutory provisions.
  • A later circular cannot automatically be relied upon to deny refund concerning earlier exports.
  • A departmental system limitation or absence of an in-built processing mechanism is not, by itself, a sufficient legal basis to deny a refund otherwise due under law.
  • Where the higher and lower drawback rates are identical, the mere selection of “Category A” does not automatically establish that the exporter received an impermissible double benefit.
  • In cases of prolonged withholding of a legitimate export refund, the Court may direct payment of substantial interest; in the present case, 9% per annum from the shipping bill dates until actual realisation.

Sections and Legal Provisions Involved

Section 16 of the IGST Act, 2017 – Zero-rated supply.

Section 16(3)(b) of the IGST Act, 2017 – Option to make zero-rated supplies on payment of integrated tax and claim refund of the tax paid in accordance with Section 54 of the CGST Act and applicable rules.

Section 54 of the CGST Act, 2017 – Refund of tax.

Section 54(1) of the CGST Act, 2017 – Application for refund of tax, interest or other amount.

Section 54(5) of the CGST Act, 2017 – Order sanctioning refund upon satisfaction of the proper officer.

Section 54(7) of the CGST Act, 2017 – Statutory timeline concerning refund orders.

Section 54(8) of the CGST Act, 2017 – Payment of specified categories of refundable amount to the applicant, including relevant export-related refunds.

Section 54(10) and Section 54(11) of the CGST Act, 2017 – Circumstances relevant to withholding or adjustment of refund.

Section 57 of the CGST Act, 2017 – Consumer Welfare Fund.

Rule 96 of the CGST Rules, 2017 – Refund of integrated tax paid on goods or services exported out of India.

Rule 96(1) – Shipping bill deemed to be an application for refund, subject to prescribed conditions.

Rule 96(3) – Processing and electronic credit of IGST refund.

Rule 96(4) – Limited circumstances in which refund claim may be withheld.

Rule 96(5) to Rule 96(7) – Procedure concerning intimation, orders and release of withheld refund.

Notification No. 131/2016-Customs (N.T.) dated 31 October 2016 – Drawback-related notification relied upon by the respondents.

Notification No. 59/2017-Customs (N.T.) dated 29 June 2017 – Amendment relevant to the drawback framework.

Circular No. 37/2018-Customs dated 9 October 2018 – Departmental circular relied upon to justify non-processing of IGST refund, which the Court found could not defeat the statutory entitlement in the circumstances.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783407125_1404compressed.pdf

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