Facts of the Case

The petitioner, I-Tech Plast India Pvt. Ltd., a company manufacturing toys and registered under the Goods and Services Tax Act, 2017, held an advance license permitting duty-free import of raw material under Notification No.79/2017-Customs dated 13.10.2017. During Financial Years 2017-18 to 2020-21, the petitioner inadvertently exported finished goods made from such duty-free raw material on payment of Integrated Goods and Services Tax (IGST), instead of exporting under a Letter of Undertaking, and received auto-refunds of the IGST paid, aggregating Rs.1,39,49,810/-. Realising that Rule 96(10) of the CGST Rules barred use of accumulated Input Tax Credit (ITC) for such IGST payment, the petitioner voluntarily repaid the entire IGST with interest of Rs.30,87,551/- via Form GST DRC-03 on 13.08.2020 and informed the department. Despite repeated representations, the corresponding ITC debited from its electronic credit ledger was not restored, leading to this writ petition.

Issues Involved

  1. Whether the petitioner is entitled to restoration/re-credit of the ITC in its electronic credit ledger corresponding to the IGST it had voluntarily repaid with interest.
  2. Whether Rule 96(10) of the CGST Rules, which restricts use of ITC for IGST payment on exports by advance-license holders, bars such restoration.

Petitioner's Arguments

  • Having voluntarily repaid the IGST on exports along with interest, the corresponding ITC originally utilised for that payment must be re-credited/restored in the electronic credit ledger with interest.
  • Despite repeated oral and written representations, the department was not restoring the ITC, citing absence of a mechanism for re-credit upon voluntary repayment of IGST.
  • An honest taxpayer should not suffer for lack of an appropriate departmental mechanism.
  • Refusal to re-credit the ITC violates Articles 265 and 300-A of the Constitution of India.

Respondent's Arguments

  • The writ application was not maintainable as the petitioner was not entitled to claim any refund.
  • Relying on paragraph 18 of the affidavit-in-reply, once an amount is paid voluntarily through Form DRC-03, it cannot be refunded.

Court Order/Findings

  • Under Section 16(1)(a) and 16(3) of the IGST Act, 2017, exports are zero-rated supplies, and an exporter may either export under bond/LoU and claim refund of unutilised ITC, or export on IGST payment and claim refund of tax paid; Rule 96(10) of the CGST Rules bars advance-license holders from using accumulated ITC for the latter route.
  • The erroneous grant of refund, and its return with interest by the petitioner, was undisputed; once both transactions are set off, what survives is the reduction of ITC in the electronic credit ledger.
  • The Court held that this is a case of restoration of erroneously debited ITC, not a fresh refund claim, so Rule 96(10) has no application; if the department accepted repayment of the erroneous refund as an error, the corresponding ITC debit must equally be treated as an error and restored.
  • The respondent authorities were directed to re-credit/restore the ITC of Rs.1,39,49,810/- in the petitioner's electronic credit ledger within two weeks of receipt of the order.
  • The Court clarified it had not examined the merits or eligibility of any refund claim, confining its direction to restoration of the ITC debited on account of the erroneous refund already repaid.

Important Clarification

  • Where an erroneously granted IGST refund is voluntarily repaid by the exporter with interest, the corresponding ITC debit in the electronic credit ledger must be restored; treating the repayment as valid while denying restoration of the ITC would amount to double taxation.
  • Rule 96(10) of the CGST Rules, which restricts utilisation of ITC for IGST payment by advance-license holders, governs refund eligibility on exports and does not apply to restoration of ITC that was reduced on account of an erroneous refund since repaid.

Sections Involved

  • Section 16 of the Integrated Goods and Services Tax Act, 2017 – defines zero-rated supply and the two refund routes available to exporters.
  • Rule 96(10) of the Central Goods and Services Tax Rules, 2017 – restricts advance-license holders from using accumulated ITC to pay IGST on exports.

Decision – In Favour of

In favour of the Assessee. The Court directed the respondent authorities to re-credit/restore the ITC of Rs.1,39,49,810/- in the petitioner's electronic credit ledger within two weeks, while clarifying that it had not adjudicated any separate refund claim on merits.

Related Case Laws

No related case laws are available on this site at present.

Case Details

  • Court: High Court of Gujarat at Ahmedabad
  • Case No.: R/Special Civil Application No.3653 of 2021
  • Coram: Hon'ble Mr. Justice J.B. Pardiwala and Hon'ble Ms. Justice Nisha M. Thakore
  • Date of Order: 07.04.2022

Link to Download the Order

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