Facts of the Case

M/s. ESL Steel Limited, earlier known as M/s. Electrosteel Steels Limited, made supplies intended for export to M/s. Bharat Heavy Electricals Limited (BHEL). The supplies were connected with the concessional tax framework under Notification No. 41/2017-Integrated Tax (Rate) dated 23 October 2017, under which inter-State supplies of taxable goods by a registered supplier to a registered recipient for export were eligible for tax treatment at the concessional rate of 0.1%, subject to fulfilment of the prescribed conditions.

One of the material conditions was that the recipient-exporter was required to export the goods within the prescribed period of 90 days. According to the case record, BHEL could not complete the exports within the stipulated period.

The petitioner relied upon the contractual terms contained in the Tender dated 3 January 2019 and Purchase Order dated 16 January 2019. Under Clause 14.1.2 of the tender, GST along with cess, as applicable and legally leviable and payable by the successful supplier under GST law, was to be paid by BHEL separately. At the same time, the supplier was required to ensure levy of the reduced/concessional rate of GST applicable to a penultimate exporter under Notification No. 41/2017 dated 23 October 2017 or similar State/Union Territory GST notifications, together with necessary compliances.

The petitioner and BHEL sought extension of the export timeline. The petitioner referred to Circular No. 37/11/2018-GST dated 15 March 2018 and contended that where exports had actually been made, though beyond the prescribed period, the jurisdictional Commissioner could consider extension of time on a post facto basis depending upon the facts and circumstances.

BHEL also made a request dated 19 August 2021, referring to delays allegedly caused by implementation of the EDI system for the first time in the riverine route in June 2019, which led to consequential cascading delays affecting other barges.

Meanwhile, the GST authorities raised differential tax demands. The petitioner was initially asked to pay approximately Rs. 9.41 crore as differential tax for supplies made during the relevant periods. A further communication dated 17 September 2021 referred to non-payment of tax amounting to approximately Rs. 3.85 crore. Thereafter, by communication dated 29 September 2021, the petitioner was asked to pay an aggregate differential tax amount of Rs. 13,26,49,589 and furnish a copy of DRC-03.

The petitioner asserted that it had paid Rs. 11,27,29,864 as IGST through the GSTR-3B return for November 2021. The Department subsequently sought interest of Rs. 5,12,71,194 on the differential tax amount and penalty at 15%, with a warning that recovery proceedings could be initiated under Section 79 read with Section 75(12) of the CGST Act, 2017.

The petitioner approached the Jharkhand High Court challenging BHEL’s refusal, through its letter dated 2 November 2021, to compensate it for the additional IGST liability. It also sought payment of the additional IGST amount of Rs. 13,26,49,589 together with applicable interest and penalty.

During pendency of the writ petition, the petitioner filed I.A. No. 2715 of 2022 seeking additional relief, including challenge to the demand communications/notices dated 21 July 2021, 17 September 2021, 29 September 2021 and 21 February 2022 as allegedly arbitrary, unreasonable, contrary to Sections 73 and 74 of the CGST Act, 2017, violative of Articles 14 and 19(1)(g) of the Constitution of India, and contrary to principles of natural justice. The petitioner also sought refund of Rs. 11,27,29,864 paid as IGST.

During the pendency of proceedings, a material development occurred. By letter dated 6 October 2022, the competent authority granted extension of the time limit for export under LUT in terms of Rule 96A(1)(a) of the CGST Rules, 2017 in respect of seven export invoices.

Issues Involved

  1. Whether the petitioner could be subjected to additional/differential IGST liability because the recipient-exporter failed to export the goods within the stipulated 90-day period under the concessional export-related tax framework.
  2. Whether the denial by BHEL to compensate the petitioner for the additional IGST liability was arbitrary, unreasonable, contrary to the Tender and Purchase Order, and violative of Articles 14, 19(1)(g) and 300A of the Constitution of India.
  3. Whether the demand communications/notices issued by the GST authorities were contrary to Sections 73 and 74 of the CGST Act, 2017 and principles of natural justice.
  4. Whether extension of the export timeline could be granted by the competent authority where exports had been completed beyond the prescribed period.
  5. What would be the effect of the competent authority subsequently granting extension of time under Rule 96A(1)(a) of the CGST Rules, 2017 for seven export invoices.
  6. Whether the petitioner became entitled automatically to refund or reversal of the tax already deposited after grant of extension, or whether such claim was required to be independently examined by the jurisdictional GST authority.

Petitioner’s Arguments

The petitioner contended that the differential tax liability arose because of delay in export by BHEL, the recipient-exporter, and that the petitioner should not be burdened with the resulting additional IGST liability.

It was argued that the relevant contractual terms under the Tender and Purchase Order contemplated that GST along with cess, as legally leviable and payable by the successful supplier under GST law, would be paid by BHEL separately.

The petitioner submitted that the exports had ultimately taken place and that the competent authority could consider extension of the prescribed export timeline on a post facto basis. Reliance was placed on Circular No. 37/11/2018-GST dated 15 March 2018.

The petitioner further contended that BHEL itself had requested extension of time, citing delays arising from implementation of the EDI system in the riverine route and consequential cascading delays.

According to the petitioner, despite the delay being connected with the recipient-exporter, the GST authorities raised a differential IGST demand of Rs. 13,26,49,589 against the petitioner. The petitioner asserted that, under threat of coercive action, it had paid approximately Rs. 11.27 crore, while further interest and penalty demands were also raised.

The petitioner argued that BHEL, being a State entity, could not arbitrarily deny compensation for the additional IGST liability where the tender and purchase order allegedly placed responsibility for legally leviable GST upon BHEL.

After the competent authority granted extension of time by letter dated 6 October 2022, learned counsel for the petitioner fairly submitted that no contentious issue remained for adjudication by the High Court. The petitioner stated that it would approach the jurisdictional GST authority for refund of the tax already paid and/or its reversal.

Respondents’ Arguments

The GST side submitted during the proceedings that the petitioner’s principal grievances were essentially directed against BHEL.

After the competent authority granted extension, the respondent side placed before the Court the letter dated 6 October 2022 issued by the office of the Principal Commissioner, CGST & Central Tax, Kolkata North Commissionerate. The communication recorded grant of extension of the time limit for export under LUT in terms of Rule 96A(1)(a) of the CGST Rules, 2017 for seven export invoices.

BHEL’s counsel submitted that, following the extension, it was for the petitioner to approach its jurisdictional GST authorities to seek refund of the voluntary tax payment made towards differential IGST.

The CGST side further submitted that the extension had been granted within the ambit of Rule 96A(1)(a) of the CGST Rules, 2017. It was stated that if the exporter’s request had not been accepted, the IGST foregone on exports made under the seven invoices would have become payable in terms of the LUTs furnished.

The respondents also clarified that the authority granting extension was not necessarily the competent authority to decide the applicability of the concessional GST rate availed by the supplier under Notification No. 40/2017-Central Tax (Rate) dated 23 October 2017 and Notification No. 41/2017-Integrated Tax (Rate) dated 23 October 2017. That issue was stated to fall for consideration by the competent jurisdictional authority of the supplier, including examination of the relevant legal provisions.

Court Order / Findings

The Jharkhand High Court considered the developments that occurred during pendency of the writ petition.

The Court observed that the original dispute arose because tax liability had fallen upon the petitioner on account of delay in making exports within the specified period contemplated by the notification dated 23 October 2017.

The Court noted that the petitioner had deposited a considerable amount of tax in the absence of extension of time.

The crucial subsequent development was that the competent CGST authority granted extension of time under Rule 96A(1)(a) of the CGST Rules, 2017 in respect of LUTs connected with seven export invoices.

In view of the grant of extension, the High Court held that the grievances raised in the writ petition no longer survived.

The Court accordingly disposed of the writ petition and observed that the petitioner could approach its jurisdictional GST authority for refund of the tax deposited and/or reversal.

The Court expressly clarified that it was not making any comment on the merits of the petitioner’s claim for refund and/or reversal. Such claim was to be decided independently by the concerned jurisdictional GST authority.

All pending interlocutory applications were also closed.

Important Clarification

The judgment is particularly important because the High Court did not grant an automatic refund merely because extension of the export timeline had subsequently been allowed.

The Court’s order makes a clear distinction between:

  • grant of extension of the export timeline by the competent authority under Rule 96A(1)(a) of the CGST Rules, 2017; and
  • adjudication of the petitioner’s substantive entitlement to refund and/or reversal of tax already deposited.

Therefore, the petitioner was permitted to approach the jurisdictional GST authority, but the High Court expressly left the refund/reversal claim open for independent consideration by the competent authority.

The order should consequently not be read as laying down that every post facto extension of an export timeline automatically results in refund of differential IGST. The refund or reversal claim remains subject to examination under the applicable statutory provisions, notifications, factual circumstances, jurisdictional competence and other legal requirements.

Sections / Rules / Notifications / Constitutional Provisions Involved

  • Rule 96A(1)(a) of the CGST Rules, 2017 — Export under bond or Letter of Undertaking and consequences connected with the prescribed export timeline.
  • Section 73 of the CGST Act, 2017 — Determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised for reasons other than fraud, wilful misstatement or suppression of facts.
  • Section 74 of the CGST Act, 2017 — Determination of tax involving fraud, wilful misstatement or suppression of facts, as invoked in the petitioner’s challenge.
  • Section 75(12) of the CGST Act, 2017 — Recovery-related provision referred to in the departmental communication.
  • Section 79 of the CGST Act, 2017 — Recovery of tax.
  • Notification No. 41/2017-Integrated Tax (Rate) dated 23 October 2017 — Concessional rate framework for specified inter-State supplies to registered recipients for export, subject to prescribed conditions.
  • Notification No. 40/2017-Central Tax (Rate) dated 23 October 2017 — Related concessional tax notification referred to in the proceedings.
  • Circular No. 37/11/2018-GST dated 15 March 2018 — Referred to in support of consideration of extension in relevant export situations.
  • Article 14 of the Constitution of India — Equality before law and protection against arbitrary State action.
  • Article 19(1)(g) of the Constitution of India — Right to practise any profession or carry on any occupation, trade or business.
  • Article 300A of the Constitution of India — Protection against deprivation of property except by authority of law.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783492989_1398compressed.pdf

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