M/s Amit Cotton Industries (“the Petitioner”) is a Cotton Ginning Mill engaged in a business of procuring raw cotton from farmers, ginning and pressing the same, carrying out necessary process, converting it into bales and then exporting these cotton bales out of India. Since the goods are exported out of India, the same are to be termed as ‘Zero Rate Supply’ in accordance with Section 16 of the IGST Act, 2017 (“IGST Act”).
Exports were made by the Petitioner in July 2017 but IGST for the same was not refunded. The Petitioner requested Competent Authority to kindly sanction refund of IGST. The Competent Authority had verbally informed that only because the Petitioner had claimed drawback @ 1% in regard to the exported goods, therefore, refund of IGST would not be sanctioned. It was also informed that if the Petitioner would have claimed drawback @ 0.15% instead of 1%, their refund would have been sanctioned.
As per the Petitioner, since it has already reversed/paid back the difference amount of the higher rate and lower rate in order to restrict the drawback claim to lower rate i.e. 0.85% (1% – 0.15%) along with interest, then even Circular No.37/2018- Customs dated October 9, 2018 (“Circular 37”) could not prevent the refund of IGST.
Whether IGST refund is allowed despite of claiming drawback at higher rate?
The Hon’ble HC of Gujarat in R/Special Civil Application No. 20126 of 2018 dated June 27, 2019, observed the provisions under Section 54 of the CGST Act, 2017 (“CGST Act”) r.w. Rule 96 of the CGST Rules, 2017 (“CGST Rules”), and held as under:
- Rejected the contention of Competent Authority that although the Petitioner might have returned the differential drawback amount, yet as there is no option available in the system to consider the claim and therefore the Petitioner is not entitled to the refund of IGST.
- Clarified that Circular 37 cannot be said to have any legal force, as it runs contrary to Rule 96 of the CGST Rules.
- Rule 96(4) of the CGST Rules makes it abundantly clear that the claim for refund can be withheld only in two circumstances as provided in sub-clauses (a) and (b) respectively as under:
(a) A request has been received from the jurisdictional Commissioner of Central tax, State tax or Union territory tax to withhold the payment of refund due to the person claiming refund in accordance with the provisions of sub-Section (10) or sub-Section (11) of Section 54; or
(b) The proper officer of Customs determines that the goods were exported in violation of the provisions of the Customs Act, 1962.
- The court observed that Circular 37 explains the provisions of the drawback and it has nothing to do with the IGST refund. Thus, the circular will not save the situation for the Competent Authority.
Accordingly, the Hon’ble HC of Gujarat directed the Competent Authority to immediately sanction the refund of the IGST paid in regard to the goods exported, i.e. ‘zero rated supplies’, with 7% simple interest from the date of the shipping bills till the date of actual refund.