Duty Drawback provisions are made to grant rebate of duty or tax chargeable on any imported / excisable materials and input services used in the manufacture of export goods. The duties and taxes neutralized under the scheme are

(i) Customs and GST in respect of inputs and

(ii) GST in respect of input services.

Duty Drawback is of two types:

√ All Industry Rate

√ Brand Rate.

Judgment 1st Gujarat High Court rules that claim of higher rate of duty drawback is not a valid reason for rejection of IGST refund on exports.

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.

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 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 should be processed immediately without any delay along with a simple interest of 7% per anum.

1. Facts

  • 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

  • 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

  • Higher duty drawback availed: The Taxpayer is not entitled to claim the refund of the IGST paid as 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 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 IGST refund was automatically done by the system as 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 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 that what was directed to be followed by the CBIC.

4. Provisions of the GST law

  • 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

  • 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.

7. Conclusion

The judgement of the HC has clarified the legal position that the IGST refunds 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 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 law.

2ndJUDGEMENT PASSED IN “G NXT POWER CORP VS UNION OF INDIA (WP (C) No 2981 of 2019 (W) dated 29th August 2019 and SOUTHERN CARBON AND CHEMICALS VS UNION OF INDIA (WP(C) No 2457 of 2019 (F))

1. Section 54 of CGST Act 2017 read with Rules 96(4) of CGST Rules 2017

  • Rule 96 of the CGST rules provides for a deeming fiction. The shipping bill that the exporter of goods may file is deemed to be an application for refund of Integrated tax paid on the goods exported out of India. Section 54 of CGST Act 2017 referred to above should be read along with Rule 96 of the rules. Rule 96(4) makes it abundantly clear that the claime for refund can be withheld only in two circumstances as provided in sub-clauses (a) and (b) respectively of clause (4) of Rule 96 of the rules, 2017.
  • In the aforesaid context, the respondents have fairly conceded that the case of writ- applicant is not falling within sub-clauses (a) and (b) respectively of clause (4) of Rules 96 of the Rules 2017. The stance of the department is that , as the writ applicant had availed higher duty drawback, the applicant is not entitled to seek the refund of the IGST paid in connection with the goods exported ie Zero rated supplies
  • Then further judgement states that if claim of the applicant is to be rejected only on basis of circular issued by Government of India dated 9th October 2018 referred above, then we are afraid the submission canvassed in behalf of the respondents should fail as the same is not substainable in law
  • Rule 96 is relevant for two purposes. The shipping bill that exporter may file is deemed to be an application for refund of integrated tax paid on the goods exported out of India and claim for refund can be withheld on the following contingencies:
    • A request has been received from the jurisdictional commissioner of CGST, SGST or UTGST to with hold the payment of refund due to the person claiming refund in accordance with the provisions of subsection (11) of Section 54 or
    • The proper officer of Customs determines that the goods were exported in violation of the provisons of Custom Act,1962.

2. Eligible refund in excess of drawback claimed

  • “The learned Standing Counsel in G NXT POWER CORP VS UNION OF INDIA (WP (C) No 2981 of 2019 (W) dated 29th August 2019 and SOUTHERN CARBON AND CHEMICALS VS UNION OF INDIA (WP(C) No 2457 of 2019 (F)) appearing for respondents does not dispute the fact that the subject transactions in fact is with effect from 01.07.2017, come under Section 16 of IGST Act and are Zero-rated. It is also not disputed that the voluntary or erroneous payment of IGST is required to be refunded to petitioner. The objection pointed out by Sri Sreejith (Petitioner) is that the petitioner has already drawn or availed the higher rate of duty drawback and therefore while ordering refund of IGST the petitioner is required to refund the higher rate of duty drawback already availed by the petitioner with interest”.
  • “Adv. John Varrghese by way of reply submits that the respondents if insist upon refund of higher rate of duty drawback by the petitioner with interest, the respondents are also required to pay interest to petitioner from the date on which the petitioner requested for refund of IGST. After hearing the counsel on the adjustment, the Court has suggested refund of IGST after adjusting the higher rate of duty drawback availed by the petitioner without refunding IGST amount. The counsels have consented to disposing of the writ petition by this order:
    • The respondents are given liberty to adjust the amount already availed by the petitioner on account of higher rate of duty drawback and pay the balance of IGST payable to petitioner within six weeks from the date of receipt of a copy of this judgment.
    • The respondents are directed to pay the balance amount i.e.,IGST minus higher rate of duty drawback already availed by the petitioner within the time granted by this Court and avoid the additional burden of interest payment on IGST refund. The respondents, if commit default in payment of balance amount as directed by this judgment, the respondents will be obligated to pay interest @ 7% together with balance amount payable from the date on which a request for refund is made by the petitioner till the date of payment”.
  • Hence Applicant is eligible for refund in excess of drawback claimed

Conclusion

Hence in view of above submission we can state that assessee in these cases are eligible for refund of IGST

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