GST Refund on Exports Cannot Be Rejected Only for Delay in Furnishing LUT or Bond: Karnataka HC [Read Order]

In a recent ruling, the Karnataka High Court held that a GST refund on exports cannot be rejected only because the exporter did not furnish a Letter of Undertaking (LUT) or Bond before making the export, as such requirement is not mandatory and can be complied with even after export.

Prime Perfumery Works, the petitioner, is a partnership firm registered under the GST law. During the financial year 2022-23, the petitioner exported goods without payment of Integrated GST and later filed a refund application under Section 54 of the Central Goods and Services Tax Act, 2017.

The department issued a show-cause notice questioning the refund claim. The petitioner submitted a reply explaining that the exports were genuine and that the refund could not be denied merely because the LUT or Bond was not furnished before export.

Despite the reply, the Assistant Commissioner rejected the refund claim by an order dated 31 January 2024. The refund was rejected because that the petitioner had not furnished a Bond or LUT in Form GST RFD-11 before exporting the goods. Aggrieved by the rejection, the petitioner approached the Karnataka High Court.

Before the High Court, the petitioner’s counsel argued that the refund rejection was contrary to the CBIC Circular dated 15 March 2018. The counsel argued that the circular clearly states that delay in furnishing LUT or Bond is a procedural lapse and that exporters should be allowed to submit the same on an ex post facto basis.

The counsel argued that substantive benefits of zero-rated supplies cannot be denied for such procedural lapses.

The respondents argued that furnishing LUT or Bond before export is mandatory under Rule 96A of the CGST Rules. According to the department, failure to comply with this condition justified rejection of the refund claim.

JusticeS.R. Krishna Kumar observed that the CBIC Circular dated 15 March 2018 is binding on the department. The court observed that the circular clearly allows exporters to furnish LUT or Bond even after export and states that delay can be condoned based on facts of the case. The court observed that non-furnishing of LUT before export is not an incurable defect.

The court explained that when exports are not disputed and substantive conditions are satisfied, refund cannot be denied only due to procedural non-compliance. The court pointed out that the respondent authority failed to consider the binding circular while rejecting the refund claim.

The court set aside the refund rejection order and remanded the matter to the Assistant Commissioner for fresh consideration. The authority was directed to reconsider the refund application after permitting the petitioner to furnish the LUT or Bond on an ex post facto basis. The writ petition was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates