IGST refund on zero-rated exports allowed; Section 54 and Rule 96(4) bar withholding except two circumstances, pay with 7% interest

The HC allowed the writ, holding the applicant entitled to refund of IGST paid on zero-rated exports in July 2017. The court found rejection based solely on Circular No.37/2018-Cust. (dated 9 Oct 2018) and system limitations unlawful, and read Section 54 with Rule 96(4) CGST Rules to conclude refunds may be withheld only in the two specified circumstances. The circular was inapplicable to the IGST refund. Respondents were directed to sanction the IGST refund immediately with 7% simple interest from the shipping bill date until actual payment.

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Issues Involved:
1. Entitlement to refund of IGST paid on exported goods.
2. Legality of withholding the IGST refund due to availing higher duty drawback.
3. Validity and applicability of Circular No. 37/2018-Customs dated 9th October 2018.
4. Compliance with the provisions of Section 16 of the IGST Act, 2017, Section 54 of the CGST Act, 2017, and Rule 96 of the CGST Rules, 2017.
5. Claim for interest on the delayed refund of IGST.

Issue-wise Detailed Analysis:

1. Entitlement to refund of IGST paid on exported goods:
The petitioner, a Cotton Ginning Mill, exported goods in July 2017 and claimed a refund of the IGST paid on these goods as per Section 16 of the IGST Act, 2017. The petitioner argued that the exported goods were 'Zero Rated Supplies' and thus eligible for a refund under Section 54 of the CGST Act, 2017. Despite fulfilling all statutory requirements, the refund was withheld by the respondent authorities without any valid reason.

2. Legality of withholding the IGST refund due to availing higher duty drawback:
The petitioner initially claimed a higher duty drawback rate of 1% but later refunded the differential amount (0.85%) along with interest. The respondent authorities verbally informed the petitioner that the refund was withheld due to the higher duty drawback claim. The petitioner contended that there is no legal provision allowing the withholding of IGST refunds on this basis. The respondent authorities argued that the system-based IGST refund mechanism does not recognize the refund of differential drawback amounts and thus denied the refund.

3. Validity and applicability of Circular No. 37/2018-Customs dated 9th October 2018:
The respondent authorities relied on Circular No. 37/2018-Customs, which states that exporters who claimed higher duty drawback relinquished their IGST/ITC claims. The petitioner argued that the circular is not legally binding and cannot override statutory provisions. The court agreed, stating that the circular cannot contradict Rule 96 of the CGST Rules, which clearly outlines the conditions under which IGST refunds can be withheld.

4. Compliance with the provisions of Section 16 of the IGST Act, 2017, Section 54 of the CGST Act, 2017, and Rule 96 of the CGST Rules, 2017:
The court examined the relevant provisions and found that the petitioner complied with all statutory requirements for claiming the IGST refund. Rule 96 of the CGST Rules specifies that the shipping bill is deemed an application for refund, and the claim can only be withheld under specific conditions, none of which applied to the petitioner's case. The court held that the respondent authorities' refusal to process the refund based on the higher drawback claim was not supported by the law.

5. Claim for interest on the delayed refund of IGST:
The petitioner also sought interest on the delayed refund of IGST. The court directed the respondent authorities to sanction the refund with 7% simple interest from the date of the shipping bills until the date of actual refund, recognizing the undue delay in processing the refund.

Conclusion:
The court allowed the writ application, directing the respondent authorities to immediately sanction the refund of IGST paid on the exported goods with 7% simple interest from the date of the shipping bills till the date of actual refund. The court emphasized that the circular relied upon by the respondents could not override statutory provisions and that the petitioner's compliance with the relevant laws entitled them to the refund.

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