Refund of unutilized ITC on export services allowed under Section 54 and Rule 89 despite FIRCs issue

HC set aside the rejection of refund of unutilized input tax credit on export of services under Section 54 CGST Act read with Rule 89 CGST Rules, where refund was denied for non-submission of FIRCs corresponding to export invoices and submission of FIRAs instead. Relying on its earlier decision in the same assessee's case, HC held that receipt of convertible foreign exchange was undisputed and the refund could not be denied merely for non-compliance with Circular No. 125/44/2019. HC directed the authorities to consider the Chartered Accountant's certificate and process the refund claims for the specified periods within twelve weeks.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether refund of unutilized input tax credit on export of services under Section 54 of the CGST Act read with Rule 89 of the CGST Rules can be denied solely for non-furnishing of Foreign Inward Remittance Certificates (FIRCs) where other documentary evidence, including a Chartered Accountant's certificate and Foreign Inward Remittance Advices (FIRAs), establishes receipt of convertible foreign exchange.

1.2 Whether the respondent authorities were bound to follow the earlier decision of the same High Court in the petitioner's own case on an identical issue and periodically similar refund claims, and consequently to process refund without insisting on FIRCs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Denial of refund for non-furnishing FIRCs despite Chartered Accountant's certificate and FIRAs

Legal framework (as discussed)

2.1 The Court noted that the petitioner's services supplied to customers outside India qualify as "export of services" under Section 2(6) of the IGST Act, resulting in accumulation of unutilized input tax credit when exports are made without payment of GST.

2.2 Refund of unutilized input tax credit is governed by Section 54 of the CGST Act read with Rule 89 of the CGST Rules. The authorities had relied on a CBIC circular requiring FIRCs for refund processing.

2.3 The Court referred to a prior Supreme Court decision holding that a certificate issued by a Chartered Accountant is to be treated as an authentic document and is required to be considered by the authority in determining receipt of foreign exchange.

Interpretation and reasoning

2.4 The adjudicating and appellate authorities had rejected the refund claims for the periods July 2021-September 2021 and October 2021-December 2021 mainly on two grounds: (i) FIRCs were not produced, only FIRAs; and (ii) the Chartered Accountant's certificate mentioned amounts in Euros whereas FIRAs reflected amounts in US Dollars, leading the authorities to discard the certificate.

2.5 The Court relied on its own earlier order in an identical matter concerning the same petitioner, where it had examined a similar Chartered Accountant's certificate certifying receipt of convertible foreign exchange under RBI approvals and verifying receivables/payables with reference to transport documents and related records.

2.6 In that earlier decision, the Court had held that the certificate clearly established receipt of convertible foreign exchange for export of services, and that the authorities were not justified in rejecting the refund solely because FIRCs, as required by the relevant CBIC circular, were not filed, once a Chartered Accountant's certificate of receipt of foreign exchange was produced.

2.7 The Court reiterated that in light of the Supreme Court's view, the certificate issued by the Chartered Accountant is required to be considered as authentic, and the respondent authorities are bound to take it into account while deciding refund claims relating to export of services.

2.8 Consequently, the insistence on FIRCs as the only acceptable proof, to the exclusion of the Chartered Accountant's certificate and other supporting documents evidencing receipt of foreign exchange under RBI approvals, was held to be unjustified.

Conclusions

2.9 Refund of unutilized input tax credit on export of services cannot be rejected solely for non-production of FIRCs where a Chartered Accountant's certificate and other documents establish receipt of convertible foreign exchange.

2.10 The respondent authorities are required to accept and act upon the Chartered Accountant's certificate as valid evidence of receipt of foreign exchange and cannot deny refund merely on the basis of procedural insistence under a circular for FIRCs.

Issue 2: Effect of earlier High Court decision in petitioner's own case

Interpretation and reasoning

2.11 The Court recorded that the respondent's counsel conceded that the issue was squarely covered by the earlier order of the same Court in a writ petition filed by the petitioner concerning a similar refund rejection on identical grounds.

2.12 In that earlier matter, the Court had quashed the order rejecting refund and directed the authorities to process the refund without insisting on FIRCs and by accepting the Chartered Accountant's certificate showing net foreign exchange receipt as per RBI's approval.

2.13 The Court observed that the facts and controversy in the present petition were indistinguishable from those in the earlier case, involving the same assessee, the same nature of export-of-services transactions, and the same ground of rejection based on non-furnishing of FIRCs.

2.14 In view of the binding nature of its prior decision on identical facts, and the admitted position of the respondents, the Court followed the earlier ruling.

Conclusions

2.15 The issue having been already decided by the Court in the petitioner's favour in an earlier writ petition on identical facts, the respondent authorities are bound by that decision and cannot sustain the present refund rejections on the same grounds.

2.16 The impugned orders rejecting refund were effectively rendered unsustainable, and the Court directed the respondent authorities to process the petitioner's refund claims for the periods July 2021-September 2021 and October 2021-December 2021 in accordance with law, without insisting on FIRCs and by considering the Chartered Accountant's certificate, within twelve weeks from receipt of the order.

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