Refund cannot be denied merely based on the Circular

[Ganeshan Kalyani]

The Hon'ble Madras High Court in the case of M/S. PRECOT MERIDIAN LIMITED VERSUS THE COMMISSIONER OF CUSTOMS, THE ASSISTANT COMMISSIONER OF CUSTOMS (2020 (1) TMI 90 - MADRAS HIGH COURT) has ruled on 19.11.2019 that the petitioner is entitled for refund and it cannot be ignored by citing the circular. Accordingly, the respondents are directed to refund the amount of IGST paid by the petitioner for the goods exported from India which are zero rated supplies, within a period of six weeks from the date of receipt of a copy of this order.

The petitioner is an exporter of cotton. During September, 2017, he exported cotton by way of seven shipping bills and paid ₹ 4,80,355/- towards IGST. The petitioner has wrongly availed the higher duty drawback to the tune of ₹ 75,454/- on 02.03.2018. Thereafter, he rectified the mistake by repaying it along with interest to the tune of ₹ 81,891/- and sought for refund of IGST paid by him.

Circular No. 37/2018-Customs dated 09.10.2018 states that if the benefit of the drawback is claimed then no refund of integrated goods and services tax paid on export product shall be claimed.

The respondents, relying on the aforesaid circular issued by the Government contend that a person, who has made request consciously for refund of duty drawback, is not entitled to IGST/ITC claims and treated that exporter has consciously relinquished the same. Further, the learned Standing Counsel appearing for the respondents would vehemently contend that the petitioner has wrongly claimed higher duty drawback and thereafter, on his own volition, but, without any sanction from the department, has paid it back. Having relinquished his right to get refund of IGST, he is not entitled to refund. Further, the entire refund is system-managed and it cannot be manually operated. Once the exporter draws higher duty drawback, the system automatically scrolls out IGST refund. Therefore, the petitioner is not entitled to refund.

Aggrieved by the decision of the respondent the present Writ Petition has been filed seeking for a Writ of Mandamus to direct second respondent to sanction and to refund the amount of ₹ 4,80,355/- of IGST paid by the petitioner for the goods exported from India.  

Sub-Section (3) of Section 16 of the Integrated Goods and Services Tax Act, 2017, prescribes that, a registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:-

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied.

Insofar as the petitioner is concerned, he exported after paying the tax and as such, he is entitled to refund of input tax credit.

In the instant case, the petitioner has wrongly availed the higher duty drawback to the tune of ₹ 75,454/- on 02.03.2018.

Thereafter, he rectified the mistake by repaying it along with interest to the tune of ₹ 81,891/- and sought for refund of IGST paid by him.

The petitioner has also complied the provision of rule 96 (1)(a) & (b) of CGST Rules, 2017.

Rule 96. Refund of integrated tax paid on goods ³[or services] exported out of India.-

(1) The shipping bill filed by an exporter of goods] shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed only when:-

(a) the person in charge of the conveyance carrying the export goods duly files a departure manifest or an export manifest or an export report covering the number and the date of shipping bills or bills of export; and

(b) the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be

Hence, the petitioner should be entitled for the refund of IGST paid by him.

The Hon'ble High Court heard the submissions and stated that "It is not in dispute that the petitioner exported cotton through seven shipping bills and paid a sum of ₹ 4,80,355/- towards IGST. It is also not in dispute that the statute provides for refund of IGST on export of materials. The only condition is that if the export is made after payment of tax, he is entitled to get refund. According to the petitioner, he has complied with the requirements of Sub-Clauses (a) and (b) of Sub-Rule (1) of Rule 96 of CGST Rules, 2017. Accordingly, he is entitled for refund and it cannot be ignored by citing the circular."

A reference to the decision of Supreme Court in the case of Commissioner of Central Excise, Bolpur v. Ratan Melting and Wire Industries 2008 (10) TMI 5 - SUPREME COURT has been made to state that circulars cannot prevail over the statute. Circulars are issued only to clarify the statutory provision and it cannot alter or prevail over the statutory provision. In that circumstance, it is clear that the explanation of provisions of drawback has nothing to do with the IGST refund. In view of that matter, Circular No.37/18-Customs, dated 09.10.2018 cannot have an application in the present case.

When the above circular was dealt with by the Hon'ble Division Bench of Gujarat High Court at Ahmedabad in M/s. Amit Cotton Industries Through Partner, Veljibhai Virjibhai Ranipa vs. Principal Commissioner of Customs, (2019 (7) TMI 472 - GUJARAT HIGH COURT) in R/Special Civil Application No.20126 of 2018, dated 27.06.2019, the Division Bench has held that it has nothing to do with the IGST refund and it is incumbent on the respondents to refund the IGST as claimed by the petitioner therein. The respondents have already passed a circular when they were facing lot of problems because of the fact that the refunds are completely systemmanaged and they have taken a conscious decision to refund the amount vide Circular No.40/2018-Customs, dated 24.10.2018.

In view of the above discussion, the respondents are directed to refund the amount of ₹ 4,80,355/- of IGST paid by the petitioner for the goods exported from India which are zero rated supplies, within a period of six weeks from the date of receipt of a copy of this order.