Facts of the Case

The Petitioner, Ohmi Industries Asia Private Limited, filed a refund application dated 29.05.2020 seeking refund of ₹3,99,187/- towards Integrated Goods and Services Tax (IGST) paid on export of services (zero-rated supply) for invoices raised in October 2018. The corresponding foreign remittances were received in November 2018.

A deficiency memo was issued requiring submission of the Foreign Inward Remittance Certificate, which was duly complied with. Subsequently, a Show Cause Notice was issued raising discrepancies relating to tax payments and Input Tax Credit (ITC) mismatch with GSTR-2A.

Despite submission of clarifications, the Adjudicating Authority rejected the refund claim on 30.07.2020. The rejection was based on application of Rule 89(4) of the CGST Rules, 2017, treating the relevant turnover as pertaining to November 2018 (when payment was received) instead of October 2018 (when invoices were raised).

The appeal filed by the petitioner was also rejected by the Appellate Authority, leading to the present writ petition.

Issues Involved

  1. Whether Rule 89(4) of the CGST Rules, 2017 applies to refund of IGST paid on zero-rated supplies.
  2. Whether refund can be denied on the ground that foreign remittance was received in a different tax period.
  3. Whether the authorities erred in treating the refund claim as one relating to accumulated ITC instead of IGST paid. 

Petitioner’s Arguments

  • The petitioner contended that refund was claimed for IGST paid on zero-rated supplies under the IGST Act, 2017.
  • Rule 89(4) of the CGST Rules applies only to cases where exports are made without payment of tax under bond or LUT, and refund is claimed for accumulated ITC.
  • It was emphasized that the petitioner had already discharged IGST liability, and therefore the formula under Rule 89(4) was inapplicable.
  • There was no dispute regarding actual export of services or payment of tax.

Respondent’s Arguments

  • The Respondent relied on Rule 96(9) read with Rule 89(4)(D) of the CGST Rules.
  • It was argued that “turnover of zero-rated supply of services” depends on receipt of payment during the relevant period.
  • Since remittances were received in November 2018 (and partly later), it was contended that no export of services occurred during October 2018 for the purpose of refund.

Court’s Findings / Order

  • The Delhi High Court held that Rule 89(4) applies only to cases of exports made without payment of tax under bond or LUT.
  • It categorically observed that the said Rule does not apply to refund of IGST paid on zero-rated supplies.
  • The Court found merit in the petitioner’s contention that:
    • The refund was of IGST paid, not accumulated ITC.
    • There was no dispute regarding discharge of tax liability.
  • The Appellate Authority was held to have erred in:
    • Mischaracterizing the claim as refund of accumulated ITC.
    • Mechanically applying Rule 89(4).
  • Accordingly:
    • The impugned order was set aside.
    • The matter was remanded back to the Appellate Authority for fresh consideration.

Important Clarification

  • Rule 89(4) CGST Rules applies only to refund of ITC where exports are made without payment of tax under bond/LUT.
  • Refund of IGST paid on exports is governed separately and cannot be subjected to Rule 89(4) formula.
  • Receipt of foreign remittance in a different period does not invalidate entitlement to refund where tax has been duly paid.

Sections / Provisions Involved

  • Section 16 of the Integrated Goods and Services Tax Act, 2017 (Zero Rated Supply)
  • Rule 89(4) of the Central Goods and Services Tax Rules, 2017
  • Rule 96(9) of the CGST Rules, 2017

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/59529032023CW68562022_130233.pdf

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