LUT Delay Is Curable, Refund Denial Is Not: Karnataka HC Sets the Record Straight - M/s Prime Perfumery Works - Karnataka High Court

1. Background

The GST law grants exporters a substantive benefit of zero-rating, either by payment of IGST and claiming refund thereof or by exporting under a Bond/Letter of Undertaking (LUT) without payment of tax and claiming refund of unutilised input tax credit. However, disputes frequently arise where procedural conditions are not strictly complied with.

One such recurring issue is whether a refund can be denied merely because the exporter furnished the LUT after effecting exports.

The Karnataka High Court, in M/s. Prime Perfumery Works Versus Asssitant Commissioner of Central Tax Bengaluru, Government of India Ministry of Finance Department of Revenue Central Board of Indirect Taxes And Customs New Delhi. - 2025 (12) TMI 1365 - KARNATAKA HIGH COURT has addressed this issue and reaffirmed that procedural lapses cannot defeat substantive export benefits, particularly when the statute and binding circulars provide flexibility.

2. Facts of the Case

The petitioner, a partnership firm, exported goods during FY 2022–23 without payment of IGST and subsequently applied for refund of unutilised ITC under section 54 of the CGST Act.

The refund was rejected by the proper officer solely on the ground that:

• the petitioner had not furnished a Bond/LUT prior to export, as contemplated under Rule 96A of the CGST Rules, 2017.

There was no dispute regarding:

• the factum of export,
• zero-rated nature of supply, or
• eligibility of ITC.

Aggrieved, the petitioner approached the Karnataka High Court challenging the rejection order .

3. Core Issue

Whether refund of unutilised ITC on zero-rated supplies can be denied only because the Letter of Undertaking was furnished after the export of goods?

4. Legal Framework

• Section 16(3), IGST Act, 2017 permits zero-rated supplies without payment of tax, subject to conditions.
• Rule 96A, CGST Rules, 2017 requires furnishing of Bond/LUT prior to export.
• CBIC Circular No. 37/11/2018-GST dated 15.03.2018, particularly paras 4 and 4.1, clarifies that:
  • zero-rating benefits should not be denied if exports are established; and
  • delay in furnishing LUT may be condoned and allowed ex post facto.
• The aforesaid Circular has been superseded vide Circular No. 125/44/2019-GST dated 18-11-2019 and similar type of clarifications has been provided.

5. Submissions Before the Court

Petitioner’s contention

• The LUT requirement is procedural.
• The CBIC Circular expressly permits post-export furnishing of LUT.
• Denial of refund defeats the object of zero-rating.

Revenue’s contention

• Furnishing LUT prior to export is mandatory.
• Non-compliance disentitles the exporter from refund.

6. Decision and Reasoning

The Karnataka High Court allowed the writ petition and set aside the refund rejection order.

The Court made the following significant observations:

• The CBIC Circular dated 15.03.2018 is binding on departmental authorities.
• Non-furnishing of LUT prior to export is not an incurable defect.
• Where exports are genuine and undisputed, substantive benefits of zero-rating cannot be denied on technical grounds.
• The proper officer erred in rejecting the refund without even considering the circular permitting condonation of delay and ex post facto LUT.

Accordingly, the matter was remanded for reconsideration of the refund claim in accordance with law and the said circular.

Thus, this ruling is firmly rooted in settled tax jurisprudence that procedure is the handmaid of justice, not its mistress. Rule 96A is intended to regulate exports, not to penalise genuine exporters.

The Court correctly harmonised:

• the statutory rule,
• the object of zero-rating under GST, and
• the administrative clarifications issued by CBIC.

Importantly, the judgment does not dilute compliance, but prevents disproportionate consequences for rectifiable procedural lapses.

7. Consequences of the Ruling

For exporters

• Refund claims cannot be mechanically rejected due to belated LUT.
• Right to seek condonation and ex post facto compliance is reinforced.

For the tax administration

• Refund orders must deal with applicable circulars.
• Hyper-technical interpretation of Rule 96A is unsustainable.

8. Practical Takeaways

• Exporters should continue to file LUTs at the beginning of each financial year.
• Where delay occurs, LUT should be filed with an application explaining reasons for delay.
• Officers must pass speaking orders considering binding circulars and the factual matrix.

9. Way Forward

The judgment highlights the need for:

• express incorporation of condonation provisions within Rule 96A, or
• a system-driven mechanism to regularise delayed LUT filings.

Such measures would significantly reduce avoidable refund litigation.

10. Conclusion

The Karnataka High Court has rightly held that substantive GST refund benefits on zero-rated supplies cannot be denied merely due to delayed furnishing of LUT, particularly when exports are established and the Board itself permits ex post facto compliance. The ruling strengthens exporter confidence and reinforces a purposive interpretation of GST law.

By: CA. Chitresh Gupta

Mobile: 99103 67918

https://www.linkedin.com/in/ca-chitresh-gupta-22795920/