Export Refund cannot be denied due to technical glitches on account of confusion during transitional phase of GST

Export Refund cannot be denied due to technical glitches on account of confusion during transitional phase of GST

Sonali Maity | Sep 23, 2021 |

Export Refund cannot be denied due to technical glitches on account of confusion during transitional phase of GST

Export Refund cannot be denied due to technical glitches on account of confusion during transitional phase of GST

Delhi High Court: The taxpayers should not be victim of technical glitches on account of confusion during transitional phase, and that the taxpayers should not be denied the substantive benefit of the IGST paid by them on exports

M/S. UPS Inverter.com & Anr. vs. Union of India & Anr.; W.P.(C) 4284/2021; Delhi High Court;09.09.2021

The Petition was filed by the Petitioners seeking declaration of certain provisions of the CGST Act and CGST Rules 2017, unconstitutional and violative of Article 14, 19 and 21 and quashing of the circulars based on the said provisions and also refund of the IGST paid on goods exported by the Petitioners during the transitional period with interest.

Facts and issue:

  •  The petitioners are the exporters of invertors, transformers and allied products. In the course of their business, between 01.07.2017 to 30.09.2007 (which is the transitional period between the pre and post GST Regime), they had made various exports falling under Tariff Item 8504 of the Notification No. 13/2016-Cus.(N.T.), dated 31.10.2016 (as amended by Notification No. 41/2017-Cus.(N.T.) dated 26.04.2017) (hereinafter referred to as ‘Drawback Schedule’) on the payment of Integrated Goods of Services Tax (IGST).
  •  The Drawback Schedule prescribed identical rates of Duty Drawback under Column ‘A’ as well as Column ‘B’ for the said Tariff Order. Since there were no guidelines from the GST or Customs department in respect of procedure to be followed in such cases, the petitioners had claimed drawback under Column ‘A’ instead of under Column ‘B’.
  •  By the Circular No. 37/2018-Customs dated 09.10.2018, the respondents have denied the refund of IGST on the ground that the exporters having filed the declarations voluntarily, they are deemed to have consciously relinquished their IGST/ITS claims.
  •  The Petition was filed seeking following reliefs:

“a) Declare that Paragraph 11(d) read with 12A(a) (ii) of the Notes and Conditions of the Notification No.131/2016-Cus. (N.T.) dated 31.10.2016 (Annexure P-3) [as amended by Notification No.59/2017-Cus. (NT) dated 29.06.2017 (Annexure P4) and Notification No.73/2017-Cus. (NT) 26.07.2017 (Annexure P5)] are (i) ultra vires Section 16 of the IGST Act, 2017 read with Section 54 of CGST Act, 2017 and Rule 96 of CGST Rules, 2017 & (ii) unconstitutional and violative of Article 14, 19 and 21 of the Constitution of India & Quash the same;

b) Declare that Circular No.37/2018- CUSTOMS dated 09.10.2018 (Annexure P-9) is (i) ultra vires Section 16 of the IGST Act, 2017 read with Section 54 of CGST Act, 2017 and Rule 96 of CGST Rules, 2017, and (ii) unconstitutional and violative of Article 14,19 and 21 of the Constitution of India & Quash the same;

c) Direct Respondent Authorities to grand refund of IGST paid on goods exported by the Petitioners during the Transitional Period, with 6% interest from the date of the shipping bill till the date of actual refund”

  •  The Petitioners’ counsel relied judgment dated 26.11.2019 of this Court in TMA International Pvt. Ltd. & Ors. vs. Union of India & Anr. in WP(C) No.2694/2019, and stated that the issue in the present petition is squarely covered by the aforesaid judgment.

Held:

The Bench agreed that the issue raised in the present petition has been otherwise settled by the Delhi High Court in TMA International (supra.) which held as under:

  •  It was contended that the purpose behind impugned circular was to ensure that the exporters do not claim AIRs of duty drawback and simultaneously avail tax neutralization under GST as this would amount to exporter availing double benefits of neutralizing of taxes. During the transitional period, Petitioners have inadvertently claimed benefit under the wrong provision, since there was lack of clarity with respect to the refund of IGST.
  •  The Bench asked that should the benefit be denied simply for this mistake when the cardinal rule is that taxes should not exported? The concept of zero -rated exports envisaged under GST is designated to achieve this objective.
  •  In the current scenario, exporters pay IGST and apply for refund. Thus, for wrong input given at the time of claiming drawback should not deprive them of this valuable right.
  •  It was observed that the fact that taxpayers have faced difficulties in understanding the complexity of GST procedures cannot be ignored. Its implementation has not been smooth and the Government itself has faced huge challenges. The model of matching of invoices for purchase, as originally envisioned could not be implemented and a truncated version of returns had to be introduced. This also entailed frequent issuance of innumerable circulars and notifications in quick succession, extending deadlines, introduction of fresh procedures and such other measures.
  •  As a result taxpayers were reeling under confusion which continues until this day implying that much needs to be done despite the efforts and measures taken by the Government.
  •  Instant case is one such example where Petitioners have been victim of technical glitches on account of confusion during transitional phase. It was therefore, observed that taxpayers like the Petitioners should not be denied the substantive benefit of the IGST paid by them on exports.
  •  It was agreed that the exporters would not voluntarily opt for the claim of drawback under Column A at the cost of foregoing IGST paid on exports, where the duty drawback rates under Column A and B were same, the exporters would have received the same amount of drawback even if they would have mentioned “B” in their shipping bills instead of “A” for claiming drawback. Since the condition for not claiming IGST refund is not applicable to cases where duty drawback has been claimed under Column B, exporters would have received IGST refund also on mentioning ”B”. Therefore, exporters did not have any benefit in claiming drawback under Column A.
  •  In such a situation under no circumstances it can be assumed that the exporters intentionally decided to claim duty drawback should forego IGST refund. Besides, if the petitioners have claimed and received only the customs duty portion of the drawback and element of IGST (earlier Central Excise Duty and Service Tax) was not included in the drawback rate, granting of IGST refund would not result in double neutralization of input taxes. Respondents have also, in fact, never intended to deny refund of IGST paid on export in cases where only custom component was claimed as drawback.

In view of the aforesaid observations and directions in the aforesaid judgment, it was, therefore directed in the present case that the respondents should carry out verification exercise of the claim made by the petitioners within 12 weeks from the date of judgment and submit a report before the said court.

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