In a significant ruling in the matter of Kunal Housewares Private Limited v/s The Union of India & Others, the Bombay High Court has clarified the issue surrounding the refund of Integrated Goods and Services Tax (IGST) paid on exported goods, particularly when the exporter also claims duty drawback at a higher rate. This article delves into the key aspects of the case, its legal implications, and the court’s decision in favor of the petitioner, underlining the eligibility criteria for IGST refunds in export transactions.
Background: The Case of Exporter’s IGST Refund Claim
The petitioner, an exporter of stainless steel kitchen and household goods, paid IGST on goods exported during the months of July, August, and September 2017. While making the exports, the petitioner had filed shipping bills in compliance with relevant GST provisions and selected Column “A” for a higher duty drawback rate of 9%, as opposed to the lower rate of 1.9% available under Column “B”. The petitioner had complied with all filing requirements, including timely submission of GSTR-1 and GSTR-3B, and paid the required IGST on the exported goods.
Despite this, the petitioner did not receive the IGST refund, which, according to the provisions of the Integrated Goods and Services Tax (IGST) Act, 2017, should have been credited to the petitioner’s bank account. The export transaction was treated as a “zero-rated supply” under Section 16 of the IGST Act, and under the applicable rules, exporters are entitled to claim an IGST refund on such supplies. However, the refund was delayed, and upon personal inquiries by the petitioner’s Custom House Agent, it was revealed that the claim for refund was denied because of the petitioner’s selection of Column “A” for a higher rate of duty drawback.
Legal Framework and Contentions:
The petitioner’s legal counsel argued that the refusal of the IGST refund was contrary to the provisions of the IGST Act, particularly Section 16(3)(b), which clearly states that exports are zero-rated and that IGST paid on such exports is refundable. Furthermore, Rule 96 of the Central Goods and Services Tax (CGST) Rules mandates that the shipping bill itself serves as an application for the refund of IGST.
The crux of the respondent’s objection lay in the petitioner’s selection of Column “A”, which allowed for a higher rate of duty drawback. The respondents contended that since the petitioner had availed the higher drawback rate, they were not eligible to claim the IGST refund. The respondents cited various notifications, including Notification No. 131/2016-Cus. and Circular No. 37/2018-Cus., arguing that the petitioner’s actions violated conditions that precluded IGST refunds when higher duty drawback was claimed.
The petitioner’s counsel countered these claims, emphasizing that there was no prohibition in the IGST refund provisions that would deny the refund based solely on the selection of Column “A”. They argued that the legal framework under Section 54 of the CGST Act and Rule 96 of the CGST Rules clearly supported the petitioner’s claim for refund.
The Court’s Ruling: Analysis and Decision:
The Bombay High Court analyzed the statutory provisions and examined various judicial precedents on the matter. The court noted that the issue was not novel and had been addressed in several previous cases, with courts consistently ruling that the selection of Column “A” for higher duty drawback does not automatically disqualify an exporter from claiming an IGST refund, provided the exporter has not availed the input tax credit (ITC) on the export goods.
In several rulings, including those in Sunlight Cable Industries vs. Commissioner of Customs and M/s. AIM Worldwide Pvt. Ltd. vs. Union of India, the courts had held that where the rates of duty drawback under Columns “A” and “B” were the same, exporters were entitled to claim both, provided there was no double benefit. The court observed that in situations where the exporter had not availed ITC on the exported goods and had opted for a higher rate of drawback, the refund of IGST should be allowed.
The Bombay High Court further clarified that the provisions governing IGST refund and duty drawback are distinct and separate. While the drawback rules under the Customs Act provide a mechanism for claiming and recovering excess drawback, they do not prohibit the refund of IGST on exported goods if the criteria are otherwise met.
The court noted that the petitioner had complied with the relevant rules, including not availing the input tax credit on exports, and thus, the denial of the IGST refund was incorrect. The court ruled that the petitioner was entitled to a refund of the IGST paid on the exported goods, but subject to a deduction for the differential duty drawback claimed.
Key Takeaways from the Judgment:
Refund of IGST on Exports: Exporters are eligible to claim a refund of IGST paid on goods exported as “zero-rated supplies”, as per the provisions of Section 16(3)(b) of the IGST Act and Rule 96 of the CGST Rules, provided the exporter has not availed the input tax credit.
Duty Drawback vs. IGST Refund: The selection of a higher rate of duty drawback under Column “A” does not automatically disqualify an exporter from claiming IGST refund, unless the exporter has claimed double benefits. Refund of IGST can be granted if the duty drawback claimed is adjusted for any excess.
Legal Precedents: The court referred to several judicial precedents that established that refund of IGST is permissible even if a higher rate of drawback is claimed, as long as the exporter has adhered to the necessary conditions under the IGST and Customs provisions.
Compliance with Notifications and Circulars: The court also pointed out that Circular No. 37/2018-Cus, which seeks to prevent double benefits in cases where both IGST refunds and higher duty drawbacks are claimed, applies only if the exporter voluntarily opts to claim drawback instead of the IGST refund.
Conclusion:
This ruling has significant implications for exporters seeking IGST refunds in India. It reaffirms that, under the right conditions, exporters can claim both IGST refunds and duty drawback without violating the law, provided they follow the prescribed procedures and do not claim a double benefit. The Bombay High Court’s decision also underscores the need for clear guidelines and compliance with both the Customs and GST laws to ensure smooth refunds and facilitate ease of doing business in India.
As the Indian export sector continues to navigate the complexities of GST, this ruling offers a welcome clarification for exporters, ensuring that their claims for refunds are processed fairly and in line with the legal provisions.
Customs Act, 1962
CENTRAL GOODS AND SERVICES TAX ACT, 2017
INTEGRATED GOODS AND SERVICES TAX ACT, 2017
