Facts of the Case

The petitioner, M/s Jaysons Exports, was a partnership firm registered under GST and engaged in the export of goods including VT pumps, spindle, flange, rubber bush nitrile and impeller. During July and August 2017, the petitioner exported goods outside India to overseas buyers in Morocco and Algeria.

The exports constituted “zero-rated supplies” under Section 16 of the Integrated Goods and Services Tax Act, 2017. The petitioner adopted the statutory option of exporting goods on payment of integrated tax and claiming refund of the IGST so paid in accordance with Section 16(3)(b) of the IGST Act read with Section 54 of the CGST Act, 2017.

The petitioner exported goods under three shipping bills and paid aggregate IGST of Rs. 2,26,087. The shipping bills were:

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

The detailed export table appearing on page 6 of the judgment records the GST invoice particulars, shipping bill numbers, Export General Manifest details, Bills of Lading, drawback amounts and the aggregate IGST payment of Rs. 2,26,087.

Under Rule 96 of the CGST Rules, 2017, 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, including filing of the export manifest/export report and a valid return in Form GSTR-3 or GSTR-3B.

Despite the exports having been completed in July and August 2017, the IGST refund remained unpaid. On approaching the authorities, the petitioner was orally informed that, while generating the shipping bills, it had claimed the higher rate of drawback by selecting or punching “A” instead of “B”, and this was the reason for non-sanction of the IGST refund.

The petitioner submitted representations dated 10 May 2022 and 18 May 2022 seeking release of the refund. As the refund was still not sanctioned, the petitioner approached the Gujarat High Court seeking immediate refund of Rs. 2,26,087 together with interest.

Issues Involved

The principal issues before the High Court were whether:

  1. IGST refund on zero-rated exports could lawfully be withheld merely because the exporter selected Category-A / higher drawback rate instead of Category-B / lower drawback rate in the shipping bills;
  2. the petitioner was entitled to refund under Section 16(3)(b) of the IGST Act, 2017 read with Section 54 of the CGST Act, 2017 and Rule 96 of the CGST Rules, 2017;
  3. Circular No. 37/2018-Customs dated 9 October 2018 could justify denial of IGST refund where the exports had taken place in July and August 2017;
  4. a departmental circular or an automated system limitation could override or restrict the substantive statutory right to refund;
  5. the fact that the higher and lower drawback rates were identical in the petitioner’s case affected the alleged claim of double benefit; and
  6. the petitioner was entitled to interest for the prolonged withholding of the IGST refund.

Petitioner’s Arguments

The petitioner contended that there was no statutory embargo against refund of IGST paid on zero-rated exports merely because “A” instead of “B” had been punched in the shipping bills.

It was specifically argued that the drawback rates applicable to the exported products were 2% and 1.5%, respectively, irrespective of whether “A” or “B” was selected. Therefore, the petitioner had not actually received any additional or higher drawback benefit. On that basis, the authorities could not refuse the statutory IGST refund.

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

Reliance was placed on Rule 96 of the CGST Rules, under which the shipping bill itself is deemed to be the refund application. The petitioner maintained that the necessary shipping bills and Export General Manifests had been generated and valid GSTR-3B returns had been furnished after payment of IGST. Therefore, no separate formal refund application was required.

The petitioner further argued that none of the statutory circumstances permitting withholding of refund under the relevant provisions existed. No prescribed intimation or withholding order had been issued.

Strong reliance was placed on Amit Cotton Industries vs Principal Commissioner of Customs, where the Gujarat High Court had considered a similar dispute and held that Circular No. 37/2018-Customs could not operate contrary to Rule 96 or defeat a statutory refund entitlement.

For interest, the petitioner also relied upon:

  • 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; and
  • M/s Sri APP Enterprises vs Principal Commissioner of Customs,

where relief concerning delayed IGST refunds and interest had been granted in similar circumstances.

Respondents’ Arguments

The respondents contended that processing of IGST refund claims was an automatic, system-driven process through the Customs EDI System. The system validates shipping bill data available in ICES against GST return data transmitted by GSTN and, upon successful matching, processes the refund electronically.

According to the respondents, the petitioner had voluntarily selected “Category-A” instead of “Category-B” while filing the shipping bills on ICEGATE. It was alleged that the petitioner thereby opted for the higher drawback category.

The respondents relied upon:

  • Condition 11(d) of Notification No. 131/2016-Customs (N.T.) dated 31 October 2016;
  • Notification No. 59/2017 dated 29 June 2017; and
  • Circular No. 37/2018-Customs dated 9 October 2018.

It was argued that higher duty drawback reflected elements of customs duty, central excise duty and service tax taken together. Since central excise and service tax were subsumed into GST, allowing IGST refund after higher drawback had already been claimed would allegedly result in a double benefit.

The respondents, however, acknowledged that in the petitioner’s factual case, the higher and lower drawback rates were identical. Their case was that the Customs ICES system nevertheless did not process the refund because the petitioner had selected Category-A, and there was no inbuilt mechanism to sanction or process the IGST refund in such cases.

Court’s Findings

The Gujarat High Court held that the petitioner had exported goods in July and August 2017 on payment of integrated tax and that such exports were zero-rated supplies under Section 16 of the IGST Act, 2017.

On a conjoint reading of Section 16 of the IGST Act, Section 54 of the CGST Act and Rule 96 of the CGST Rules, the Court found that the petitioner was entitled to receive refund of the IGST paid at the time of export.

The Court rejected the respondents’ stand that the refund of Rs. 2,26,087 could be withheld because the petitioner had claimed the higher drawback category. The reliance on Circular No. 37/2018-Customs and the relevant drawback notifications was held insufficient to defeat the statutory refund entitlement.

The Court noted that Circular No. 37/2018 was issued after the petitioner’s exports, whereas the exports had occurred in July and August 2017.

The Court applied the principle laid down in Amit Cotton Industries vs Principal Commissioner of Customs, holding that the facts of the petitioner’s case were squarely covered by that decision.

The High Court reiterated that:

  • a circular cannot run contrary to statutory provisions;
  • Rule 96 is clear regarding the deemed refund application and processing of IGST refund;
  • administrative or system limitations cannot override statutory entitlement;
  • circulars and instructions represent administrative understanding and cannot prevail over statutory law; and
  • a circular contrary to statutory provisions has no legal existence.

The Court also relied upon the principles stated by the Supreme Court in Commissioner of Central Excise, Bolpur vs Ratan Melting and Wire Industries and J.K. Lakshmi Cement Ltd. vs Commercial Tax Officer, Pali concerning the legal status and limitations of departmental circulars.

Ultimately, the Court held that the petitioner, being a validly registered exporter entitled to the benefit of the IGST Act, was entitled to 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 respondent authorities were directed to:

  1. immediately sanction refund of Rs. 2,26,087, representing IGST paid on exported goods constituting zero-rated supplies; and
  2. pay interest at 9% per annum from the dates of filing the respective 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

This judgment establishes an important distinction between a statutory refund entitlement and an administrative or system-based restriction. The mere fact that an exporter selected “Category-A” in the shipping bill cannot, by itself, justify indefinite denial of an IGST refund where the exporter otherwise satisfies the statutory conditions under the IGST Act, CGST Act and CGST Rules.

A particularly significant factual aspect was that the higher and lower drawback rates were identical in the petitioner’s case. Therefore, the respondents’ allegation of impermissible double benefit lacked support from any actual additional drawback advantage received by the petitioner.

The judgment further clarifies that a departmental circular cannot override Rule 96 or curtail a refund right created by statute. Equally, the absence of an inbuilt mechanism in the Customs ICES system cannot by itself extinguish a legally enforceable refund entitlement.

The decision is also significant on the question of delay: where a legitimate IGST refund is unlawfully withheld for a prolonged period, the Court may direct payment of interest, and in the present case the rate awarded was 9% per annum from the dates of the shipping bills until actual realisation.

Sections and Legal Provisions Involved

  • Section 16, IGST Act, 2017 — Zero-rated supply;
  • Section 16(3)(b), IGST Act, 2017 — Export on payment of integrated tax and claim of refund;
  • Section 54, CGST Act, 2017 — Refund of tax;
  • Section 54(1), CGST Act, 2017 — Application for refund;
  • Section 54(5), CGST Act, 2017 — Refund order;
  • Section 54(7), CGST Act, 2017 — Time framework concerning refund order;
  • Section 54(8), CGST Act, 2017 — Refund payable to applicant in specified cases, including zero-rated supplies;
  • Section 54(10) and Section 54(11), CGST Act, 2017 — Withholding of refund in prescribed circumstances;
  • Rule 96, CGST Rules, 2017 — Refund of integrated tax paid on goods exported out of India;
  • Rule 96(1) — Shipping bill deemed to be an application for IGST refund;
  • Rule 96(3) — Processing and electronic credit of IGST refund;
  • Rule 96(4) — Limited circumstances for withholding refund;
  • Rule 96(5) to Rule 96(7) — Procedure relating to withheld refund;
  • Notification No. 131/2016-Customs (N.T.) dated 31 October 2016;
  • Notification No. 59/2017 dated 29 June 2017; and
  • Circular No. 37/2018-Customs dated 9 October 2018.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783409639_1412compressed.pdf

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