Validity of Withholding BCD Refund Pending Reversal of IGST ITC

[Kumar Gaurav]

Post reassessment of a Bill of Entry, exemption was allowed resulting in reduction of BCD/SWS and consequential reduction in IGST. The importer had already availed IGST ITC. The department is insisting on reversal of IGST ITC with interest as a pre-condition for grant of refund and is withholding refund of BCD/SWS till such reversal.

Importer does not want to reverse IGST and only want BCD/Cess Refund.

Whether, in law, refund of BCD/SWS can be denied on this ground and whether interest is payable on IGST Reversal. 

[Sadanand Bulbule]

Refund of BCD/SWS under Section 27 of the Customs Act cannot be withheld on the ground that IGST ITC has not been reversed. There is no statutory provision making reversal of IGST ITC a pre-condition for grant of customs duty refund. Customs and GST are distinct enactments, and compliance under one statute cannot be enforced by withholding a benefit under another. Such action is without jurisdiction and violative of Article 265.

Further, interest on IGST reversal is not payable where ITC was lawfully availed on a valid Bill of Entry and becomes inadmissible only due to post-import reassessment. Interest under Section 50 of the CGST Act applies only to wrong availment and utilization, which is absent here.

Accordingly, refund of BCD/SWS is to be sanctioned, without insisting upon IGST reversal or interest.

[Shilpi Jain]

However if the ITC of IGST actually has reduced due to the re-assessment then why not reverse it. How can you keep that ITC.

Interest depends on whether you have utilised the credit, though as rightly pointed out by the expert, it was a rightful credit when availed so on that ground also no interest shoul dbe applicable.

In case the amounts involved are huge you could consider approaching the courts.

AI Summary

Withholding BCD/SWS refunds cannot be conditioned on non-reversal of IGST ITC, and interest typically not payable. A customs-duty refund (BCD/SWS) should not be withheld as a means to compel reversal of IGST ITC because customs and GST are separate statutes and no provision makes IGST reversal a precondition for customs refunds; interest on IGST reversal is said to be inapplicable where ITC was lawfully availed and later disallowed solely by post-import reassessment, though if reassessment reduces ITC it ought to be reversed and interest depends on utilisation.