IGST refund can be granted to the exporter after deducting differential duty for opting higher duty drawback

The Hon'ble High Court of Bombay in the case of M/s Kunal Housewares Private Limited v. Union of India and Ors. [Writ Petition No. 2215 of 2023 dated August 26, 2024] directed the Revenue to grant refund of the Integrated Goods and Services Tax ("IGST") paid on 'zero rated supplies' to exporter who has claimed drawback at higher rate, after deducting the differential amount of duty drawback, alongwith with interest at 7% p.a. on such refund from the date of the shipping bill till the date of actual refund and held that the higher duty drawback reflects the element of Customs/Central Excise and Service Tax taken together, and since higher duty drawback is already being availed, then granting the IGST refund would amount to double benefit as the Central Excise and Service Tax has been subsumed in the GST.

Facts

M/s Kunal Housewares Private Limited ("the Petitioner") exported Stainless Steel Table, kitchen and other household articles in the months of July, August and September 2017. While doing so, certain documents were issued / generated. The Petitioner paid IGST in respect of the exported goods as mentioned in the corresponding entries in respect of the relevant invoices / shipping bills. The Petitioner also selected Column "A" for the purpose of claiming drawback mentioned in the corresponding entry in the said table while generating the relevant bill of entry.

As per the Section 16 of the Integrated Goods and Services Tax Act, 2017 ("IGST Act"), if IGST is paid in respect of "Zero Rated Supplies", the exporter would be eligible to get refund of IGST paid in regard to the said supplies in accordance with Section 54 of the Central Goods and Services Tax Act, 2017 ("the CGST Act"). Further, it is the case of the Petitioner that, under Rule 96 of the Central Goods and Service Tax Rules, 2017 ("the CGST Rules"), the shipping bill generated for the purpose of export of goods is required to be considered as the application for refund and no separate application is required to be filed. Such refund of IGST is required to be credited to the bank account of the exporter directly with the help of portal (GSTN), provided FORM GSTR-1 and FORM GSTR-3B are filed.

The Petitioner had paid IGST in regard to the goods which were exported and had also filed FORM GSTR-1 and FORM GSTR-3B on time. Therefore, it is the case of the Petitioner that the shipping bills filed in regard to the said exports were required to be treated as an application for refund and the refund of IGST paid in regard to exported goods was required to be credited in the Petitioner's bank account.

The exports were made by the Petitioner in July, August and September 2017. Despite considerably long time having passed, the said refund was not credited to the Petitioner's bank account. Therefore, the Petitioner's Custom House Agent time and again personally visited the Assistant Commissioner of Customs ("the Respondent No.2") office and made requests for refund of IGST in the Petitioner's bank account at the earliest. However, the same was not done.

During personal visits of the Petitioner's Custom House Agent, he was informed that, as while generating the shipping bill, the Petitioner had claimed higher rate of drawback at the rate of 9% by selecting column "A", instead of lower rate of drawback at the rate of 1.9% by selecting column "B". Hence, the Petitioner would not be eligible to avail refund of IGST. Thereafter, by a letter dated March 13, 2020 was addressed to Respondent No.2, wherein the Petitioner requested him to pay the said amount of refund at the earliest in accordance with the provisions of the statute.

Since. the Respondents failed to refund the IGST amount of Rs.45,88,237/- claimed by the Petitioner, the Petitioner filed the present Petition seeking refund of the said amount.

Issue

Whether IGST refund can be granted to the exporter after deducting differential duty for opting higher duty drawback?

Held

The Hon'ble High Court of Bombay in Writ Petition No. 2215 of 2023 held as under:

· Relied on, Sunlight Cable Industries v. The Commissioner of Customs NS II and 2 Ors. [Writ Petiton No. 284 of 2021 dated June 27, 2023], Gujarat Nippon International Pvt. Ltd. v. Union of India [2022 (64) G.S.T.L. 45 (Bom.)], M/s.Jaysons Exports v. Union of India [Special Civil Application No. 16028 of 2020 dated December 22, 2021], AwadkrupaPlastomechPvt.Ltd. v. Union of India [2021 (46) G.S.T.L. 31 (Guj.)], Gujarat Nippon International Pvt.Ltd. v. Union of India [2022 (64) G.S.T.L. 438(Del.)]and inTMA International Pvt. Ltd. v. Union of India [2020 (35) G.S.T.L. 22 (Del.)], whereinthe Courts have held that, if the rate of drawback under column "A" and column "B" is the same, then, in such a situation, refund of IGST has to be ordered even if the party selects column "A", as, because the rates are identical, by selecting column "A" the party does not get any double benefit.

· Relied on, M/s.AIM Worldwide Pvt. Ltd. v. Union of India [Special Civil Application No. 15648 of 2020 dated December 22, 2021] , M/s.Vimla Food Products v. Union of India [Special Civil Application No.16028 of 2020 dated December 22, 2021], Amit Cotton Industries v. Principal Commissioner of Customs [2019 (29) G.S.T.L. 200 (Guj.)], Phoenix Contact India Pvt. Ltd. v. Commissioner of Customs (Export), Delhi [2022 (64) G.S.T.L. 163 (Del.)], Nilamel Exports v. Union of India [2019 (29) G.S.T.L. 692 (Ker.)], G NXT Power Corp. v. Union of India and Ors. [WP(C) No.2981 of 2019 (W) dated August 29, 2019], R. P. Exim v. The Principal Commissioner of Customs [2023 (69) G.S.T.L.240 (Guj.)], Kishan Lal Kuria Mal International v. Union of India [2023 (69) G.S.T.L. 51 (Del.)]andReal Prince Spintex Pvt. Ltd. v. Union of India [2020 (35) G.S.T.L. 369 (Guj.)], whereinthe Courts allowed refund of IGST despite the party selecting column "A" and claiming drawback at a higher rate because the party had already paid back the differential drawback or the Courts allowed the refund of IGST by directing deduction therefrom of the differential drawback claimed.

· Relied on, AwadkrupaPlastomechPvt.Ltd. (Supra),the Gujarat High Court in fact held that Circular No.37/2018 - Customs dated October 09, 2018 would apply only to cases where the exporters have availed the option to take drawback at the higher rate in place of the IGST refund out of their own volition. Further, the rationale for not allowing the refund of IGST for those exporters, who claim higher duty drawback, is that the higher duty drawback reflects the elements of Customs / Central Excise and Service Tax taken together, and since higher duty drawback is already being availed, then granting the IGST refund would amount to double benefit as the Central Excise and Service Tax has been subsumed in the GST.

· Held that,the Petitioner had selected Column "A" and claimed drawback at a higher rate on its own volition. It is not the case of the Petitioner that it had selected column "A" and claimed drawback at a higher rate due to some mistake. The Petitioner did not refund or volunteered to refund the differential amount of drawback claimed by it. As held by the Gujarat High Court (supra), the higher duty drawback reflects the element of Customs / Central Excise and Service Tax taken together, and since higher duty drawback is already being availed of by the Petitioner, then granting the IGST refund would amount to double benefit as the Central Excise and Service Tax has been subsumed in the GST. The SLP against this decision of the Gujarat High Court was dismissed by the Supreme Court in the case of Union of India and Ors. v. AwadkrupaPlastomech Pvt. Ltd. [2021 (54) G. S. T. L. J55 (SC)] on the ground that there was a clear finding of fact recorded by the Gujarat High Court that the Respondent therein had claimed IGST export refund only to the extent of the customs component. The Supreme Court held that there was no error in the said finding of the High Court. Hence, the Petitioner will be entitled to refund of IGST after deducting the differential amount of duty drawback.

Our Comment

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 Pvt. Ltd. v. Union of India [W.P. (C) 9065/2023 dated October 30, 2023], 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.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED