Case Law Details
Akay Natural Ingredients Private Limited Vs union of India (Kerala High Court)
In this case before the Kerala High Court, the petitioner, an export-oriented unit engaged in the manufacture of flavours and allied products, challenged a show cause notice and consequential proceedings initiated for recovery of IGST refund already granted in relation to exports made during the period from 23.10.2017 to 08.09.2018.
The petitioner had imported raw materials from outside India and availed the benefit of Notification No. 78/2017-Customs dated 13.10.2017. In respect of exports made under shipping bills during the above period, the petitioner claimed refund of IGST on goods exported on payment of IGST. The refund claims were processed and allowed after being found consistent with Rule 96(10) of the CGST Rules.
Subsequently, the third respondent issued Ext.P1 show cause notice seeking recovery of the refund amount already granted. The basis for the proposed recovery was Notification No. 54/2018 and the Gujarat High Court judgment in Cosmo Films Limited v. Union of India reported in [2020(10) TMI] 1099, where it had been held that Notification No. 54/2018 was effective from 23.10.2017. According to the respondents, the amendment introduced into Rule 96(10) of the CGST Rules by Notification No. 54/2018 operated retrospectively from 23.10.2017, making the petitioner ineligible for the refund already granted.
The petitioner challenged the show cause notice mainly on the ground that the Gujarat High Court judgment relied upon by the respondents had subsequently been modified by an order dated 19.09.2024 reported in [2024 (10) TMI 275]. In the modified judgment, the Gujarat High Court clarified that Notification No. 54/2018 would come into effect only from 09.10.2018 onwards. The petitioner argued that since all transactions covered by the show cause notice related to the period prior to 09.10.2018, the amended Rule 96(10) could not be applied to those transactions.
It was also pointed out that during the pendency of the writ petition, a final order based on the show cause notice had been passed by the third respondent and was produced as Ext.P7 in the proceedings.
After hearing both sides, the Kerala High Court observed that the entire proceedings for recovery of the refund were initiated in relation to transactions that occurred before 09.10.2018, which was the date from which Notification No. 54/2018 was clarified to have come into force. The Court further noted that both the show cause notice and the order-in-original were based solely on the earlier Gujarat High Court judgment which had treated the notification as effective from 23.10.2017.
The Court observed that since the Gujarat High Court had subsequently modified its earlier judgment and clarified that the notification would operate only from 09.10.2018 onwards, none of the transactions referred to in Ext.P1 show cause notice and Ext.P7 order would fall within the scope of the amended notification.
Holding that the very basis for initiating the recovery proceedings no longer survived after the modification of the Gujarat High Court judgment, the Kerala High Court accepted the petitioner’s contention. Accordingly, the writ petition was disposed of by quashing Ext.P1 show cause notice and Ext.P7 order, holding that the petitioner’s transactions referred to in those proceedings could not be subjected to the conditions contained in Notification No. 54/2018.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner is an export-oriented unit engaged in the business or manufacture of flavours and other allied products. During the period from 23.10.2017 to 08.09.2018, the petitioner carried out imports of raw materials used for the said products, which were procured from outside the country. In respect of the imports, the petitioner availed the benefit of the Notification No. 78/2017/Customs dated 13.10.2017. In connection with the exports undertaken by the petitioner under shipping bills for the period from 23.10.2017 to 08.09.2018, the petitioner filed and claimed a refund of IGST as the goods were exported on payment of IGST. The request of the petitioner for a refund was processed, and the same was allowed as it was found to be consistent with the provisions of Rule 96(10) of the CGST rules.
2. However, later, Ext.P1 show cause notice was issued by the 3rd respondent, seeking recovery of the amount received by the petitioner as refund in respect of the aforesaid transactions. The reason for seeking such recovery was the stipulations in Notification No.54/2018, and also relying upon the observations made by the High Court of Gujarat in Ext.P2 judgment in Cosmo Films Limited v. Union of India [2020(10) TMI] 1099 Gujarat High Court, wherein, it was held that notification No. 54/2018 is effective from 23rd October, 2017. Thus, in view of the amendment brought into Rule 96(10) of the CGST Act, 2018, as per the notification referred to above with effect from 23.10.2017, the 3rd respondent found that the petitioner is not entitled to the refund. The show cause notice was issued in such circumstances. This writ petition is submitted challenging the show cause notice.
3. The challenge is raised mainly on the reason that, the judgment of the Gujarat High Court, based on which, Ext.P1 show cause notice was issued, was subsequently modified by the Gujarat High Court, as per the order dated 19.09.2024 reported in [2024 (10) TMI 275] Gujarat High Court. In the said order, the earlier judgment was modified by clarifying that, the Notification No.54/2018 will came into effect only from 09.10.2018 onwards. Thus, it was pointed out that, in the light of the aforesaid modification, for none of the transactions for which Ext.P1 show cause notice was issued, the amendment to Rule 96 (10) of CGST Rules brought in as per Notification No. 54/2018, can be made applicable. It is further pointed out that, during the pendency of the writ petition, a final order has been passed by the 3rd respondent, based on the show cause notice, which is produced as Ext.P7 in the writ petition along with I.A. No. 1/2026.
4. I have heard Sri A. Kumar, the learned Senior Counsel appearing for the petitioner, assisted by Smt. G. Mini and Sri P.P. Dinesh, the learned Standing Counsel appearing for the respondents.
5. The only contention raised by the learned Senior counsel while challenging the sustainability of the show cause notice and the consequential order issued is that, the very judgment which formed the basis of the show cause notice was subsequently reviewed, and as per the reviewed judgment, the amendment will come into effect only from 9.10.2018. The consequence of the same is that, since all the transactions in respect of which show cause notice is issued, are before the date of 09.10.2018, the proposal made in Ext.P1 show cause notice and the conclusion in Ext.P7 are not legally sustainable.
6. Even though the learned Standing Counsel for the respondents opposed the aforesaid contention, on going through the contents of Ext.P1 and the findings in Ext.P7, I find that, the entire proceedings for recovering the refund already availed by the petitioner, were initiated in respect of the transactions before 09.10.2018, the date of which the Notification referred to above came into force. It is also to be noted in this regard that, in the show cause notice and the order-in-orginal, the adverse findings were entered into, by solely relying upon the judgment originally rendered by the Gujarat High Court as evidenced by Ext.P2. The reason for relying upon the said judgment is that, as per the same, it was held that the effect of Notification No. 54/2018 was from 23.10.2017 onwards, in which event, all the transactions would fall within the purview of the same. However, since the said judgment has now modified by clarifying that, the effect of said notification is from 09.10.2018 onwards, none of the transactions referred to in Ext.P1 and P7 would fall under the purview of the same. Therefore, the contention raised by the petitioner is only to be accepted, as the cause of action for issuing Ext.P1 was the observation in Ext P2 judgment. In such circumstances an interference is required.
Accordingly, this writ petition is disposed of, quashing Exts.P1 and P7, holding that the transactions of the petitioner referred to in the impugned notice and the order, cannot be subjected to the conditions in Notification No 54/2018.
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