IGST refund cannot be denied despite availing duty drawback

[Bimal jain]

The Hon’ble Madras High Court of Madurai Bench in the case of THE ASSISTANT COMMISSIONER OF CUSTOMS, UNION OF INDIA VERSUS M/S. MODERN INDIA PRODUCTS, REPRESENTED BY ITS MANAGING PARTNER, S. UMA MAHESWARAN - 2025 (3) TMI 317 - MADRAS HIGH COURT, allowed refund claim by the assessee of the Integrated Goods and Services Tax (“the IGST”) refund for exports that would qualify as zero -rated supply. While Circular No. 37/2018-Customs dated October 09, 2018 (“the Circular”) relied upon by Standing Counsel to state that if duty drawback is claimed, refund of IGST amount cannot be sought. The Court relied on the Hon’ble Gujarat High Court case wherein it was held that the Circular cannot prevail over Rule 96 of the CGST Rules.

Facts:

M/s Modern India Products (“the Petitioner”) is an exporter of goods known as “absorbent gauze roll”. The export was made on September 26, 2017. The goods were valued at Rs.12,72,827/- and the Petitioner paid a sum of Rs.2,54,449/- towards IGST.

The Petitioner contends that the exports would come under zero rated supply and they are entitled to refund of the IGST amount in terms of Sections 16 and 54 of the IGST Act read with Rule 96 of CGST Rules.

When the Petitioner applied for refund, it was not acted upon. Hence the Petitioner filed MODERN INDIA PRODUCTS VERSUS THE ASSISTANT COMMISSIONER OF CUSTOMS, UNION OF INDIA - 2021 (4) TMI 1213 - MADRAS HIGH COURT. Hence, aggrieved by the circumstances, the present intra-court appeal has been filed by the Petitioner.

Issue:

Whether refund of IGST can be sought if duty drawback is claimed?

Held:

The Hon’ble Madras High Court of Madurai Bench in THE ASSISTANT COMMISSIONER OF CUSTOMS, UNION OF INDIA VERSUS M/S. MODERN INDIA PRODUCTS, REPRESENTED BY ITS MANAGING PARTNER, S. UMA MAHESWARAN - 2025 (3) TMI 317 - MADRAS HIGH COURT held as under:

• Noted that, the Circular states that if duty drawback is claimed, refund of IGST amount cannot be sought.
• Relied on, M/S AMIT COTTON INDUSTRIES THROUGH PARTNER, VELJIBHAI VIRJIBHAI RANIPA VERSUS PRINCIPAL COMMISSIONER OF CUSTOMS - 2019 (7) TMI 472 - GUJARAT HIGH COURT wherein the Division Bench of the Hon’ble High Court held that the Circular cannot prevail over Rule 96 of the CGST Rules. The Hon'ble Division Bench observed that the circular will not save the situation for the Department. This decision was followed by the Madras High Court in the decision reported in M/S. PRECOT MERIDIAN LIMITED VERSUS THE COMMISSIONER OF CUSTOMS, THE ASSISTANT COMMISSIONER OF CUSTOMS -2020 (1) TMI 90 - MADRAS HIGH COURT.
• Held that, several other High Courts have taken the very same view. Since the single Judge bench granted relief to the Petitioner only by following the existing legal position, interference with the said order is not warranted.

Our Comments:

Duty Drawback scheme was introduced by the Ministry of Finance as a rebate for duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods, manufactured in India and exported. The exported products are revenue natural. The Central Government is empowered to grant Duty Drawback under section 74 and 75 of the Customs Act, 1962 (“the Customs Act”). Section 74 of the Customs Act discusses about drawback allowable on re-export of duty-paid goods, wherein duty drawback to the extent of 98% of the duty paid on imported goods can be claimed for re-export, provided the goods are re-exported within two years of payment of import duty. Further, Section 75 of the Customs Act discusses about drawback on imported materials used in the manufacture of goods which are exported, it empowers duty drawback on export of manufactured articles.

The Duty Drawback are of three types:

• All Industry Rates 
• Brand Rates
• Special Brand Rates

No amendments have been made to the drawback provisions under the Customs Act in the GST regime.

In the Pari Materia case of INTEC EXPORT INDIA PRIVATE LIMITED VERSUS UNION OF INDIA & ORS. - 2023 (11) TMI 952 - DELHI HIGH COURT, the Hon’ble Delhi High Court directed the Revenue to refund IGST despite higher duty drawback selection where column A and B provided identical rates.

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