Refund of IGST on Export Goods Being Zero Rated Supplies Allowable as Excess Drawback was Repaid: Gujarat HC Directs to Grant Refund along with Interest [Read Order]

The Gujarat High Court has held that refund of Integrated Goods and Service Tax (IGST)on export goods being zero rated supplies allowable as excess drawback was repaid and directed the respondent to sanction refund along with interest.

ADF Foods Ltd, the petitioner challenged the inaction on the part of the respondents not to sanction the refund claims of integrated goods and service tax paid on exported goods i.e. “Zero Rated Supplies” through Mundra Customs Port.   The petitioner sought for full refund of Rs.2,13,543/- paid as IGST on goods exported i.e. “Zero Rated Supplies” through Hazira Port vide shipping bill.

In context of the shipping bills, the petitioner had exported goods from Mundra Customs Port and Hazira Customs Port.  The supplies were affected by payment of IGST in accordance with the provisions of Section 16(3)(b) of the IGST Act under claim of refund of IGST paid on export goods under Section 16(3)(b) of the Act read with Rule 96 of the CGST Rules, 2017.  The petitioner had declared details of such supplies by filing form GSTR-1 and GSTR-3B. 

The petitioner requested for refund of IGST in respect of shipping bill.   It was their case that due to oversight, the Custom House Agent had inadvertently selected “A” suffixed with the serial number in the drawback notification which provides for higher drawback rates concerning cases where CENVAT facility has not been availed, instead of “B” which provides for lower draw back for cases that are otherwise.  It was their case that the excess drawback on account of availing of CENVAT credit facility had been repaid with interest and therefore the petitioner is entitled to the refund of IGST in respect of the shipping bills.  

The petitioner argued that undisputedly the goods exported by the petitioner were “Zero Rated Supplies” and in accordance with Section 16(3)(b) of the IGST Act, the petitioner is entitled to refund of such tax paid on the goods and services. 

The respondent Mr. Nikunt Raval would submit that the processing of refund claim is an automatic process.  The Customs EDI System has an inbuilt mechanism to automatically grant refund after validating the shipping bill data available in ICES against the CGST returns.  Relying on the notification dated 31.10.2016, he would submit that since the petitioner had claimed higher drawback, he was not entitled to IGST refund and the petition therefore should be dismissed. 

The stance of the department is that, as the writapplicant had availed higher duty drawback and as there is no provision for accepting the refund of such higher duty drawback, the writ-applicant is not entitled to seek the refund of the IGST paid in connection with the goods exported, i.e. 'zero rated supplies'.

Rule 96 is relevant for two purposes.The shipping bill that the exporter may file is deemed to be an application for refund of the integrated tax paid on the goods exported out of India and the claim for refund can be withheld only in the following contingencies : (a) a request has been received from the jurisdictional Commissioner of central tax, State tax or Union territory tax to withhold the payment of refund due to the person claiming refund in accordance with the provisions of subsection (10) or sub-section (11) of Section 54; or (b) the proper officer of Customs determines that the goods were exported in violation of the provisions of the Customs Act, 1962.

Relying on a decision of the Supreme Court in the case of J.K.Laxmi Cement Limited v. Commercial Tax Officer, the Division Bench held that the circular cannot run contrary to the statutory rule, more particularly, Rule 96.  The Division Bench therefore, held that the circular had nothing to do with IGST refund.  The petition was allowed directing the respondents to immediately sanction the refund of IGST.

A division bench of Justice Biren Vaishnav and Justice Bhargav D Karia directed the respondents to sanction the refund of IGST paid in context of shipping bills referred to in para 24(b) of the petition with simple interest @ of 6% from the date of the Shipping bills till the date of actual refund. 

To Read the full text of the Order CLICK HERE

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