HC Quashes GST Refund Recovery for Absence of SCN & Representation Opportunity

Power Engineering (India) Private Ltd Vs Union of India (Bombay High Court)

A legal challenge brought by a 100% Export Oriented Unit (EOU) against a substantial Goods and Services Tax (GST) refund recovery order has resulted in the order being quashed by the High Court. The court found that the tax authorities failed to adhere to the mandatory procedure prescribed under the GST Act for raising demands and ordering recoveries. The ruling, however, left open the larger questions regarding the validity and applicability of Rule 96(10) of the Central Goods and Services Tax Rules, 2017, which restricts IGST refunds on exports for entities that received tax-exempt supplies.

The petitioner in the case is a company engaged in the manufacture of electronic goods and accessories, operating as a registered EOU under the GST Act. A key aspect of the petitioner’s business model involves importing raw materials and inputs without payment of basic customs duty and Integrated Goods and Services Tax (IGST). This exemption is claimed under specific notifications issued by the Customs Department, including a notification dated March 31, 2003, as amended from time to time, which provides duty exemptions for EOUs to facilitate export manufacturing. In addition to imported inputs, the petitioner also sources raw materials and inputs from domestic suppliers. The final electronic goods manufactured using both imported and domestic inputs are subsequently exported. At the time of export, the petitioner pays IGST on these finished goods and is therefore entitled to claim a rebate or refund of the IGST paid on the products exported, as per the provisions of the GST law.