Unreasonable delays in grant of refund of Integrated Goods and Services Tax (‘IGST’) has impacted several exporters in the recent past. There have been several instances where taxpayers had to resort to litigation in the High Court in order to obtain specific relief and direction for grant of IGST refunds and also in cases of IGST Refund where Higher drawback claimed on Exports.
Duty drawback is one of the export incentives provided by the Government of India under the Foreign Trade Policy. As per the policy decision taken by the Government of India, exporters availing higher rate of duty drawback may not be eligible for refund of IGST on exports. However, the same was not a permitted reason under the GST law to withhold refunds.
In the case of M/s. Amit Cotton Industries [R/ Special Civil Application No. 20126 of 2018], the Gujarat High Court (‘HC’) has ruled that claim of duty drawback is not a valid reason for unreasonably withholding IGST refunds. The HC held that the IGST Refund where Higher drawback claimed on Exports should be processed immediately without any delay along with a simple interest of 7% per anum.
1. Facts on IGST Refund where Higher drawback claimed on Exports
- The Taxpayer is a Cotton Ginning Mill, engaged the business of procuring raw cotton from farmers, ginning the same, pressing the same, carrying out necessary process, converting it into bales and then exporting these cotton bales out of India.
- The Taxpayer is registered under the GST law. The outward supplies made by the Taxpayer are taxable under the GST law.
- However, as the Taxpayer exports the supplies outside of India, the supplies are eligible to be considered as ‘Zero Rate Supply’ in accordance with Section 16 of the IGST Act.
- As per Section 16(3)(b) read with Section 54 of the IGST Act, the Taxpayer has an option to claim refund on the exported goods to the extent of the IGST paid on the exported goods.
- In order to claim refund, the Shipping Bill filed the Taxpayer shall be deemed to be an application for refund of IGST, as per Rule 96 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’).
- The Taxpayer had issued Commercial Invoice(s), Export Invoice(s) and Shipping Bill(s). The Shipping Line had generated Export General Manifest and Bill of Lading. The Taxpayer has also furnished the relevant export details in the monthly returns in Form GSTR-3B.
- Despite the repeated follow-ups, the GST authorities had not released the IGST refund to the Taxpayer
2. Arguments of the taxpayer on IGST Refund where Higher drawback claimed on Exports
- Provisions of GST law: As per the provisions of Section 54 of CGST Act read with Section 16 of IGST Act, the GST authorities are supposed to immediately process and issue refund of the IGST paid on export of goods, considering the Shipping Bills as application for IGST refund.
- Delay in grant of IGST refund: The export was made in July 2017 but the IGST has not been refunded till June 2019. The GST authorities have not assigned any reason till date for withholding the IGST refund. Despite several follow-ups with the GST authorities, the IGST refund was not sanctioned.
- Excess claim of duty drawback: The GST authorities had verbally informed the Taxpayer that refund of IGST would not be sanctioned as the Taxpayer had claimed drawback @ 1% in regard to the exported goods as against 0.15%.
- Refund of duty drawback along with interest: There was no provision under the GST law under which refund of IGST could be withheld due to excess claim of drawback. However, as the Taxpayer was suffering from cash crunch and was in dire need of the refund amount, the balance drawback i.e. 0.85% (1% – 0.15%) along with interest. The same was also informed to the relevant Drawback authorities.
- Reason for withholding IGST refund: Upon writing an e-mail to the GST authorities, a response states that the only reason for withholding the IGST refund is that the claim of excess duty drawback and the provisions of Circular No.37/2018 – Customs dated 9 October 2018.
3. Arguments of the GST authorities on IGST Refund where Higher drawback claimed on Exports
- Higher duty drawback availed: The Taxpayer is not entitled to claim the refund of the IGST paid as the higher duty drawback was availed. Hence, Section 16 of the IGST Act, as well as the provisions of Section 54 of the CGST Act, have no application.
- Refund of excess duty drawback is a unilateral action: Refund of the differential duty drawback by the Taxpayer is a unilateral act by the Taxpayer not recognized under the law.
- IGST refund mechanism is an electronic process: IGST refund mechanism is system-based and processed electronically in accordance with the declaration given in the Shipping Bill filed by Taxpayer and the details mentioned in the GST return. The rejection of the IGST refund was automatically done by the system as a higher drawback was claimed.
- Circular on duty drawback: As per Circular No.37/2018 – Customs dated 9 October 2018, the Central Board of Indirect Taxes and Customs (‘CBIC’):
- Exporters avail the option to take drawback at a higher rate in place of IGST refund on their own volition as part of the prescribed documentation/ forms.
- Where exporters avail such option and provide a declaration while claiming the higher rate of drawback, it would not be justified allowing exporters to avail IGST refund after initially claiming the benefit of higher drawback.
- Circulars of CBIC binding on GST authorities: Circulars of the CBIC are binding on the GST authorities and hence, the GST authorities could not take a different stance than what was directed to be followed by the CBIC.
4. Provisions of the GST law IGST Refund where Higher drawback claimed on Exports
- Zero-rated supplies: As per Section 16 of the IGST Act, certain supplies like exports are eligible for zero rating. A registered taxpayer making zero rated supplies is eligible to claim refund under the options as provided Section 16(3)(a) and 16(3)(b) of CGST Act.
- Refund of IGST: As per Section 54 of the CGST Act, any person claiming refund of IGST and interest paid on such exports, shall make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed.
- Application for refund: As per Section 57 of the CGST Act, upon receipt of such application as per Section 54, the jurisdictional GST officer shall be satisfied and pass an order for grant of IGST refund.
- Shipping Bill to be considered as a refund application: Rule 96 of the CGST Rules provides for a deeming fiction as the Shipping Bill filed by the exporter is deemed to be an application for refund of IGST paid on exported goods.
- Withholding IGST refund under GST law: As per Rule
96(4) of the CGST Rules, claim for IGST refund can be withheld only in the
following two circumstances:
- a request has been received from the jurisdictional GST officer to withhold the IGST refund payment due to claim of refund under Section 54(10) or 54(11) of the CGST Act
- the proper Customs officer determines that the exports were in violation of the relevant provisions of the Customs Act, 1962.
5. Analysis by the HC on IGST Refund where Higher drawback claimed on Exports
- Not covered by restrictions: The Taxpayer has demonstrated that their case is not covered by the restrictions contained in Rule 96(4) of CGST Rules.
- Reasoning of GST authorities not acceptable: The stance of the GST authorities that the Taxpayer had availed higher duty drawback, there is no provision for accepting the refund of such higher duty drawback and there is no option available in the system to consider the IGST refund claim is not acceptable
- Reliance placed on Circular of duty drawback: If the refund is rejected only on the basis of the Circular No.37/2018 – Customs dated 9 October 2018 then the same is not sustainable under GST law. The Circular cannot be said to have any legal force if it is contrary to the statutory rules, more particularly, Rule 96 of the CGST Rules.
- Timeline of events: Taking notice of the dates of the transaction and the Circular relied by the GST authorities, the argument of the GST authorities is not acceptable as the Circular is dated 9 October 2018, whereas the export took place on 27 July 2017. Over and above, the Circular explains the provisions of duty drawback and has nothing to do with the grant of IGST refund.
6. Judgement of the HC
- Rule 96 of the CGST Rules is very clear and unambiguous.
- The Taxpayer is entitled to refund of IGST paid on goods exported to Bangladesh even if duty drawback was claimed.
- GST authorities directed to immediately sanction the refund of the IGST along with a 7% simple interest from the date of the Shipping Bill till the date of actual refund.
- The order to be considered as ‘Rule absolute’ i.e., order to be enforced at once and immediately, without any delay.
The judgment of the HC has clarified the legal position that the IGST Refund where Higher drawback claimed on Exports could be withheld only in circumstances permitted under law and shall not be withheld unreasonably.
While the intention of the CBIC and GST authorities by applying the provisions of the Circular about IGST Refund where Higher drawback claimed on Exports was to ensure that no exporter is doubly benefitted for the same transaction, the same does not have authority under the existing provisions of GST law.
Where the government contemplates expanding the scope of the restrictions for grant of refund, the same may have to be brought only by way of an amendment to the existing provisions of GST laws on of which is related to IGST Refund where Higher drawback claimed on Exports.
Read more on CLARIFICATION ON ISSUES RELATING TO REFUND