Grapes Digital Pvt. Ltd. Vs Principal Commissioner & Anr (Delhi High Court)
In case of GRAPES DIGITAL PVT. LTD. (W.P.(C)No. 2918/2021) Delhi high court held that the petitioner would be entitled to refund of tax paid (IGST paid either under the RCM on inputs or the IGST on exports). The revenue’s contention that any claim for refund of ITC would be barred is also not persuasive. And directed to revenue for refund sanctioned by the Adjudicating Authority in terms of the Order-in-Original dated 08.08.2019 be disbursed to the petitioner along with applicable interest.
Fact of the case- The petitioner is engaged in the business of providing services of digital media management, online advertisement, management of advertisement project, sale and procurement of space and slots for advertisement on social media, planning and management of advertisement campaign and other business support services. The petitioner provides its services to clients located in India as well as abroad. And Export of service is executed under LUT, however it was blocking the working capital , therefore, later amended the invoices (with payment of tax) and claimed the refund
The refund application was duly acknowledged by department and duly sanctioned but also raised the demand of Interest on late payment of Tax as well as Late payment of RCM. Petitioner challenged the demand as same is without SCN under Sec 73.and since export is tax neutral (payment and refund), Interest is not applicable. Further in review application, department considered that, since the Export was made under LOU, refund of Tax paid on export cannot be claimed.
Conclusion – If the Revenue’s contention is accepted that the petitioner could not change its option under Section 16(3) of the IGST Act after completing the exports, the natural consequence would be that the petitioner would be entitled to refund of accumulated unutilised ITC, which it had utilized in payment of IGST. In this case, the petitioner would not liable to pay interest on delayed payment of IGST on export of services either. However, in any event, the petitioner would be entitled to refund of tax paid (IGST paid either under the RCM on inputs or the IGST on exports). The revenue’s contention that any claim for refund of ITC would be barred is also not persuasive. If the refund of IGST on exports was rejected on the ground that petitioner could not amend the invoices, it would follow that its claim would be required to be considered for the ITC utilised to pay such IGST. It is difficult to accept the Revenue’s contention that the petitioner had forfeited its right to claim refund on account of an attempt to amend its option as available under Section 16(3) of the IGST Act, as in force at the material time.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition impugning several orders. The petitioner impugns the Orders-in-Original dated 24.10.2018 and 08.08.2019, passed by the Adjudicating Authority in respect of the application filed by the petitioner for refund of Integrated Goods and Services Tax (hereafter ‘IGST’) in respect of ‘zero rated supply’ being the export of services. In terms of the impugned Order-in-Original dated 24.10.2018, the Adjudicating Authority had allowed the petitioner’s claim for the refund of IGST of Rs24,33,20,306/- but, had adjusted an amount of Rs5,08,03,767/- on account of interest liability. The interest liability comprised of an amount of Rs2,26,71,171/-, on account of interest on delayed payment of tax on input supplies on Reverse Charge Method (hereafter ‘RCM’) and Rs2,81,32,596/- as interest on delayed payment of IGST on zero rated supplies. The Adjudicating Authority had passed the impugned Order-in-Original dated 08.08.2019 pursuant to a remand by the learned Appellate Authority holding that the adjustment on account of interest was permissible under Section 75 (12) of the Central Goods & Services Tax Act, 2017 (hereafter ‘the CGST Act’) and Section 79(1)(a) of the CGST Act.
2. In addition, the petitioner impugns the Review Order dated 16.10.2019 passed by respondent no.1 [Principal Commissioner, Central Goods & Service Tax, Delhi, South Commissionerate] directing that an appeal be filed for setting aside the impugned Orders-in-Original dated 24.10.2018 and 08.08.2019 to the extent that the said orders accepted the petitioner’s claim for a refund of IGST in the sum of Rs24,33,20,306/-.
3. The petitioner also impugns an Order-in-Appeal dated 30.04.2019 passed by the Appellate Authority [Commissioner of Central Tax, Appeals-II, Delhi] rejecting the petitioner’s appeal against the impugned Order-in-Original dated 24.10.2018 and remanding the matter for rectification of the said order. The petitioner is aggrieved to the extent that the levy of interest and its adjustment was upheld. Finally, the petitioner also impugns an Order-in-Appeal dated 14.10.2020 passed by the Appellate Authority allowing the Revenue’s appeal against the Orders-in-Original dated 24.10.2018 and 08.08.2019 and dismissing the petitioner’s appeal against the impugned Order-inOriginal dated 08.08.2019.
4. The petitioner claims that it is entitled to a refund of the sum of Rs24,33,30,306/- being the IGST paid in respect of zero rated supplies made during the period of July, 2017 till March, 2018. The petitioner claims that its activity of import and export of services is tax neutral and it has no real liability to pay any tax. Although, the petitioner is liable to pay tax on import of services on RCM, it is entitled to claim refund of the same, either directly, or by availing the Input Tax Credit (ITC) to pay IGST on its output supplies and claim refund of the IGST. In either of the two options, its net liability to pay goods and services tax is nil. In the aforesaid basis, the petitioner submits that the adjustment of interest on its tax liability against its claim for refund, is erroneous.
5. It is also the petitioner’s case that the controversy is restricted to the question whether the Adjudicating Authority was correct in adjusting the interest liability. The question whether the petitioner was entitled to a refund, as claimed, was settled in its favour. It is contended that the said question could not be reopened by the Revenue by reviewing the Order-in-Original dated 24.10.2018 and filing an appeal after a period of six months, for preferring an appeal as stipulated under Section 107(2) of the CGST Act, had expired and after the Order-inOriginal dated 24.10.2018 had merged with the Order-in-Appeal dated 30.04.2019.
6. The Revenue has countered the aforesaid submissions. According to the Revenue, its appeal against the Order-in-Original dated 24.10.2018 filed pursuant to the Review Order dated 16.10.2019, was within the period of six months as stipulated under Section 107(2) of the CGST Act. The Revenue contends that in any event the appeal was filed within the prescribed period, from the date of the impugned Order-in-Original dated 08.08.2019. Since, the said order dealt with the question of refund, the Revenue’s right to review the same was wide enough to cover all aspects of refund, including the petitioner’s claim for the refund of Rs24,33,20,306/- which was accepted by the Adjudicating Authority.
7. It is the Revenue’s case – which was accepted by the Appellate Authority in its impugned Order-in-Appeal dated 14.10.2020 – that the petitioner having chosen to export the goods under a Letter of Undertaking (LOU) without payment of Central Goods and Service Tax (hereafter ‘CGST’) was precluded from changing its option to pay IGST and claim refund on export of services (zero rated supply). It is submitted that the only recourse available to the petitioner was to seek refund of ITC on account of tax paid on RCM in respect of import of input supplies. Since the petitioner had not filed any application seeking refund of the said ITC and had confined its application to the refund of IGST, its claim for refund was unsustainable.
8. The controversy in the present case arises in the following factual context.
8.1 The petitioner is engaged in the business of providing services of digital media management, online advertisement, management of advertisement project, sale and procurement of space and slots for advertisement on social media, planning and management of advertisement campaign and other business support services. The petitioner provides its services to clients located in India as well as abroad. The petitioner claims that it is required to import such services from entities located overseas. In terms of Section 7(4) of the Integrated Goods & Services Tax Act, 2017 (hereafter ‘the IGST Act’), the supply of services imported into the territory of India is required to be treated as supply of services in the course of inter-state trade or commerce and thus, the same is chargeable to IGST under the IGST Act. However, IGST is required to be paid by the importer of such services under RCM. In terms of Section 20(iv) of the IGST Act, the provisions of the CGST Act relating to ITC apply mutatis mutandis in relation to IGST as they apply to CGST as if they are enacted under the IGST Act. Section 16 of the IGST Act defines ‘zero rated supplies’ to include export of goods and services. Thus, the services exported by the petitioner qualify as zero rated supply.
8.2 In terms of Section 16(3) of the IGST Act, as was in force at the material time, the petitioner had the option to either seek refund of IGST paid in respect of inputs for zero rated supplies made under the LOU without the payment of IGST, or to seek refund of IGST paid in respect of such zero rated supplies.
8.3 The Goods and Services Tax regime was rolled out in the month of July, 2017. The petitioner claims that there was a huge confusion with regards to the implementation of the refund mechanism and that the claims for refund were not being processed expeditiously. Thus, it was apparent that any input tax paid by the petitioner on RCM basis would get stuck with the concerned authorities and the petitioner’s claim for refund of the said amount would not be processed within a short period of time. The petitioner claims that in order to avoid the blocking of its funds by payment of IGST on RCM, the petitioner refrained from depositing such tax, which it was liable to pay under the IGST Act. During the period in question, the petitioner exported its services under the LOU without payment of IGST.
8.4 Subsequently, the petitioner amended its returns by amending its invoices to reflect the same as invoices bearing IGST under the IGST Act. In the month of August, 2018, the petitioner deposited IGST for its input supplies (on RCM). It also deposited IGST on export of services by utilizing the ITC that was accumulated on account of payment of IGST on input supplies. Thereafter, on 28.08.2018, the petitioner filed an application claiming Rs24,33,20,306/- as refund of IGST paid against zero rated supplies.
8.5 The refund application was duly acknowledged by respondent no.2. The said application was disposed of by the Adjudicating Authority by the Order-in-Original dated 24.10.2018. The Adjudicating Authority accepted the petitioner’s claim for refund of IGST amounting to Rs24,33,20,306/-, however, it held that the interest due on delayed payment of IGST on RCM, on inputs as well as on the interest liability on delayed payment of IGST, was required to be adjusted under Section 73 of the CGST Act read with Rule 50 of the Central Goods & Services Tax Act, 2017 (hereafter ‘the CGST Rules’). The aggregate of the interest was computed as Rs5,08,03,767/-. Accordingly, the net amount of Rs19,25,16,539/- was sanctioned. Tabular statements indicating the interest liability on delayed payment of IGST on inputs was computed at Rs2,26,71,171/- and the interest liability on delayed payment of IGST on exports was computed at Rs2,81,32,596/-, and the same are set out below:
“Interest liability on delayed payment of RCM:-
