2019 (7) TMI 472 - HC - GST

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 ... Right to refund of IGST on zero-rated supplies - withholding of refund under Rule 96(4) of the CGST Rules - deeming fiction of shipping bill as refund application - binding nature and limits of administrative circulars - system-based electronic refund mechanismRight to refund of IGST on zero-rated supplies - deeming fiction of shipping bill as refund application - withholding of refund under Rule 96(4) of the CGST Rules - Entitlement of the writ-applicant to refund of IGST paid on exports where shipping bills and statutory conditions under Rule 96 are satisfied and none of the withholding contingencies in Rule 96(4) apply. - HELD THAT: - The Court held that exports in July 2017 constituted zero-rated supplies under Section 16 of the IGST Act and that, by virtue of Rule 96 of the CGST Rules, the shipping bill is deemed to be an application for refund once the manifest/EGM and valid GSTR-3/GSTR-3B return requirements are met. Rule 96(4) limits withholding of such refund to two situations: (a) a request from the jurisdictional Commissioner under Section 54(10) or (11), or (b) a Customs determination of export in violation of the Customs Act. The respondents conceded that neither ground applied. The department's reliance on an administrative circular and on the electronic system's inability to process a refund after a higher drawback claim was rejected. The Court held that a circular cannot override the statutory scheme embodied in Rule 96 and Section 54, and that the electronic system's limitations do not supplant the statutory entitlement where the prescribed conditions are satisfied. Applying these principles, the Court found the petitioner entitled to the IGST refund. [Paras 29, 30, 34, 35, 36]Refund of IGST paid in respect of the exported goods is to be sanctioned immediately, since none of the contingencies in Rule 96(4) applied and the petitioner fulfilled the requirements of Rule 96.Binding nature and limits of administrative circulars - system-based electronic refund mechanism - Validity of reliance on Board Circular No.37/2018-Cus and the respondents' contention that system constraints preclude sanction of refund after a higher drawback claim. - HELD THAT: - The Court held that the Circular dated 9.10.2018 is an administrative instruction and cannot override or have the effect of altering the statutory provisions under Section 54 and Rule 96. The circular additionally post-dates the exports and merely interprets drawback provisions; it therefore could not justify withholding statutory refunds. Further, the department's plea that the automated system cannot process a refund where a higher drawback was claimed was not a legal ground to deny a refund when statutory requisites for refund were met. The Court rejected the submission that unilateral repayment of differential drawback by the petitioner is ineffective, finding that statutory rules, not the circular or system limitations, govern entitlement. [Paras 29, 34]The Circular and alleged system constraints do not constitute lawful grounds to deny the IGST refund; reliance on them is unsustainable.Interest on delayed refund - Entitlement to interest on the delayed refund and the rate to be applied. - HELD THAT: - Having held that the refund is due, the Court directed that the refund be paid with simple interest at the rate of 7% from the date of the shipping bills until actual payment. The Court exercised its remedial power to award interest for the period of delay in sanctioning the statutory refund. [Paras 36]Refund to be paid with 7% simple interest from the date of the shipping bills till actual refund.Final Conclusion: Writ petition allowed; respondents directed to immediately sanction the IGST refund payable in respect of the exported goods and to pay the refund with simple interest at 7% from the date of the shipping bills until actual payment; Rule made absolute. 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.