No withholding of GST refund on account of need for verification of suppliers to supplier of ultimate exporter

Bhagyanagar Copper Private Limited Vs Central Board of Indirect Tax and Customs (Telangana High Court)

Conclusion: Since no discrepancy had been found with regard to the suppliers of assessee, the refund claim by assessee could not be denied to be processed on the ground that verification of the suppliers of assessee’s supplier was pending as the provisions of the CGST Act and the IGST Act did not mandate refund claimant to verify the genuineness of the suppliers of its supplier, inasmuch as enough safeguards/mechanism were provided under the Act to recover the taxes, if not paid or wrong credit was availed by assessee’s supplier or supplier’s supplier.

Held: In the instant case, assessee had effected zero rate supplies and would be eligible to claim refund of such Integrated tax paid on goods or services or both under Section 16(3)(b) of the IGST Act. Respondents have sought to justify their action of non-refund of IGST paid, on the ground of system alert generated on 01.03.2020, requiring to examine the suppliers of assessee up to two levels. However, the contents of the alert  insofar as assessee was concerned, stated the reason for such alert, as assessee might be resorting to overvaluing/misclassification or misdeclaration of export consignment to claim higher export incentive. All the communications emanated from the jurisdictional authority, clearly revealed that not only the export consignment of assessee had been verified as per the system alert, but the authorities also completed verification of the suppliers of assessee in L1 and L2 stage. Even if the claim of the respondents as to non-completion of verification of suppliers of assessee up to two levels was to be accepted, since, the proportion of such suspicious suppliers, the respondents ought to have granted provisional refund to the extent of 90% as provided under Section 54(6) read with Rule 91 of the CGST Rules, which the respondents failed to do. It was held that the provisions of the CGST Act and the IGST Act do not mandate assessee to verify the genuineness of the suppliers of its supplier, inasmuch as enough safeguards/mechanism were provided under the Act to recover the taxes, if not paid or wrong credit was availed by assessee’s supplier or supplier’s supplier. Inasmuch as no discrepancy had been found with regard to the suppliers of assessee, the refund claim by assessee could not be denied to be processed on the ground that verification of the suppliers of assessee’s supplier was pending. The reluctance on the part of the respondents in granting of refund to exporters upon completion of exports would result in taking away the incentive to export and would make the exports from the country unviable due to non-flow of funds in the form of refund assured under the Act. Accordingly, the respondent was directed to grant IGST refund on the zero rated supplies effected by assessee during the period – 15.02.2021 to 21.05.2021, as claimed, or on provisional basis as provided under Section 54(6) of the CGST Act r/w Rule 91 of the CGST Rules, by crediting such amount to assessee’s account within three weeks from the date of receipt of a copy of this order.

FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT

This Writ Petition is filed for issue of a Writ of Mandamus directing the 2^nd respondent – Principal Commissioner of Central Tax, GST Bhavan, Secunderabad,, to grant the IGST refund of Rs.14,78,99,959/- along with applicable rate of interest under Section 56 of the Central Goods and Services Tax Act, 2017 (for short, ‘the CGST Act’), for the period – February, 2021 to May, 2021; directing the 4^th respondent – Joint Commissioner of Customs, O/o the Principal Commissioner of Customs, Hyderabad, to grant All Industry Drawback of Rs.1,10,10,580/- and brand rate drawback of Rs.2,15,28,420/- by fixing drawback along with applicable rate of interest in terms of Section 75 A of the Customs Act, 1962; and directing the 5^th respondent – Director-General Analytics and Risk Management, New Delhi, to remove system alert and issue No Objection Certificate for exports made by the petitioner.

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