Jal Engineering Through Partner Karishma Shaikh vs. Union Of INDIA Through Secretary

Held

The Court held that the refund of IGST paid on zero-rated supplies should be sanctioned. The Court found that the shipping bills, as per Rule 96 of the CGST Rules, 2017, are deemed to be an application for refund of integrated tax paid on exports. Withholding of such refund is permissible only under specific circumstances outlined in Rule 96(4) read with Section 54 of the CGST Act, which did not apply in this case. The Court noted that the respondents had chosen to follow a circular, but the Court had already interpreted the relevant provisions and decided the matter in a prior judgment (Amit Cotton Industries). The Court strongly disapproved of the respondents' obstinate stance and their failure to apply mind, especially when the rate of drawback was the same (2%) irrespective of whether scheme 'A' or 'B' was selected. The Court relied on the principle that lower authorities are bound by decisions of higher courts and tribunals, as highlighted in E.I. Dupont India (P.) Ltd. vs. Union of India. Consequently, the Court directed the respondents to sanction the refund and pay interest at the prescribed statutory rate from July 1, 2019.

Facts

The petitioner, Jal Engineering, a partnership firm engaged in manufacturing and exporting valves, filed a writ petition under Article 226 of the Constitution of India seeking immediate sanction of refund of Integrated Goods and Service Tax (IGST) paid on zero-rated supplies made via Shipping Bills No. 8465051, 8459617, and 8455069, dated September 5, 2017, September 5, 2017, and September 14, 2017, respectively. The total IGST paid was Rs. 17,30,468/-. The refund was withheld based on an email from ICEGATE stating that since a drawback was claimed at a higher rate, the refund could not be sanctioned under Section 54 of the CGST Act read with Section 16 of the IGST Act. The petitioner contended that the Custom House Agent (CHA) inadvertently failed to disclose the IGST paid, which was later rectified. They also argued that the distinction between drawback schemes 'A' and 'B' was irrelevant as the rate was 2% in both cases, and the authorities had failed to apply mind.

Key Issues

1. Whether the refund of IGST paid on zero-rated supplies can be withheld solely on the ground that a drawback was claimed at a higher rate, particularly when the rate of drawback is the same irrespective of the scheme chosen, as per Section 54 of the Central Goods and Service Tax Act, 2017 and Rule 96 of the CGST Rules, 2017? Petitioner's arguments: The petitioner argued that the refund should be sanctioned as they had complied with the requirements for zero-rated supplies and the distinction made by the authorities between drawback schemes 'A' and 'B' was erroneous because the drawback rate was 2% in both instances. They relied on Circular No. 05 of 2018-Customs, which provided a mechanism for rectifying errors, and cited decisions of higher courts, including E.I. Dupont India (P.) Ltd. vs. Union of India, to emphasize the binding nature of judicial pronouncements on lower authorities. Revenue's arguments: The respondents contended that the refund was not feasible due to the erroneous mention of 'A' (higher rate of drawback) instead of 'B' (lower rate of drawback) in the application, implying a material discrepancy that justified withholding the refund.