January 8, 2020

Circular can not prevail over the statute, HC allows IGST refund where higher rate of drawback claimed

Several goods exporters across the country could not avail of their ITC refund for a period of July 17 to September 17. The reason being the GST refund where higher drawback claimed a higher rate of drawback, this has been a major concern for the whole exporter community. Already many have faced losses as the GST department rejected the refund claim relying on the 37/2018 circular. Several cases have been registered by exporters on the same.

In one of such cases, the Madras High Court has given their verdict in favour of the exporter. In the case of M/S. PRECOT MERIDIAN LIMITED VERSUS THE COMMISSIONER OF CUSTOMS, THE ASSISTANT COMMISSIONER OF CUSTOMS the court has passed their judgement after hearing all the facts from both petitioner and respondent. The major outcome of the hearings came when the court restated the fact that-

A circular can not prevail over the statute.

1. Background of GST refund where higher drawback claimed

2. The Saga of M/s Precot Meridian vs. The commissioner of Customs

The single bench under Justice M. Govindaraj made their decision in the case of M/S Precot Meridian Limited vs. The Commissioner of Customs and Anr related GST refund where higher drawback claimed.

M/S Precot Meridian is a cotton exporter. The company exported cotton in September 2017 with seven shipping bills and paid Rs. 4,80,355/- as IGST. But initially, he availed higher duty drawbacks wrongly. And later, he repaid the amount along with interest and asked for a refund of the amount he paid as IGST. As the petitioner claimed, he exported the goods only after paying the tax, but he was not offered the refund of the input tax credit as the Zero-rated supply act Section 16(3) of the IGST Act suggests.

3. Facts on GST refund where higher drawback claimed

The technicalities of the new rules clearly showcase that, claiming for the benefits of the IGST law was a wise idea. However, the respondents were relying on a Government circular. As the circular suggests, if an exporter consciously asks for a refund of the higher rate of duty drawback, he is not supposed to be entitled to IGST or ITC claims.
As the respondents claimed, the exporter here had done the same, which is why he is not entitled to a refund. They stated that the petitioner has claimed a higher duty drawback. The respondents have also said that as the petitioner draws a higher duty drawback, the system opts out of IGST refund automatically.
After realizing the mistake of claiming a higher rate of drawback, the petitioner repaid the amount in full along with interest.
When analyzing the case, the Madurai bench of Madras Court clarified that the only condition the statute offers for IGST refunds on exports is that the shipping has to be made after paying the tax.
While coming up with the decision, the court has cited two similar verdicts. One, of a division bench of Gujarat High Court at Ahmedabad, and the other is from a Judgement made by Supreme Court. Related to these two cases, the division bench under Justice M. Govindaraj also made their decision in favor of the petitioner. Also, to claim refunds, taxpayers need to file their Shipping Bills, and they need to deem that as an application for a refund of IGST.
Moreover, taxpayers who supply goods outside of India are eligible for the ‘Zero Rated Supply.’ They also have the option to claim refunds on their exported goods and services. This is called the Export General Manifest and Bill of Lading, where the taxpayers have to submit or export details about their monthly returns in Form GSTR-3B.
Section 54 of the CGST Act and Section 16 of the IGST Act ruled out that the GST authorities needed to process and issue the refund IGST paid on the export of goods without any delay. And they needed to consider the Shipping Bills as an application for the taxpayers’ IGST refund.

4. Judgment on GST refund where higher drawback claimed

The Madras Court directed the Respondent to refund the amount paid as IGST by M/S Precot Meridian Ltd. for the goods they exported from India since it falls under “zero-rated supplies.” The court has directed that the petitioner has to get the refund within six weeks from the date of receipt.
In the Rule 96 of the CGST Rules, the statements were pretty clear. It’s evident that the taxpayers have to pay the refund of IGST on their goods that they export to Bangladesh regardless of the claiming of duty draw.
Moreover, there is no rule for allowing a higher duty drawback refund. Alongside, there is not even an option available that will help taxpayers to consider the IGST refund claim as non-acceptable.

5. Winding Up

As per the judgment of the HC, it has been clarified that the IGST refunds legal position is needed to be withheld under particular circumstances. For instance, the IGST refunds can only be withheld under permitted law, and they could not withhold the decision without a proper reason. Further, the intention of the CBIC and GST authorities was to apply the provisions of the Circular to ensure that no taxpayer or exporter should benefit more than it should be in the same transition. Still, it does not have the authority under the existing provisions of GST law.

As a result, the government contemplates are still expanding the opportunities to restrict the permission for refunds, and that shall only be brought by an alteration of the current terms of GST law.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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