Gujarat HC Issues Direction to GST Authorities for Complying Court Orders Regarding IGST Refund

The decision of the Gujarat High Court, on a special civil application, while highlighting the binding nature of its directions on respondent authorities, remarked that once the Court furnishes the directions, it holds authority over the respondent authorities, and therefore, the respondent authorities are liable to comply with the directions that the Court issues when practising their powers under Article 226 of the Constitution of India.

The division bench of Justices Bhargav D. Karia And Niral R. Mehta ruled that “Once this Court has issued the directions, the same are binding upon the respondent-authorities and the respondent-authorities had no reason to take a different view than the directions issued by this Court while exercising the powers under Article 226 of the Constitution of India. The respondent authorities are bound by the directions issued by this Court and therefore, the impugned order is hereby, quashed and set aside.”

Real Prince Spintex (P.), involved in the trade of cotton yarn and cotton waste, functions under the GST law, in which the goods exports are categorized as “zero-rated supplies.” Section 16 of the Integrated Goods and Service Tax Act, 2017 (“the IGST Act”) delivers two options: either pay the IGST and ask for the refund, or claim the refund of unused ITC against a bond or letter of undertaking (“LUT”). Real Prince Spintex opted for the latter option and conducted exports from July 2017 onwards under LUT, filing the IGST on such exports.

An error emerges on the expiry of LUT. Real Prince Spintex inadvertently chose the option of exporting excluding tax filing via furnishing the shipping bills for the exports even after lacking the LUT. A Clearing and Forwarding Agent (“CHA”) mistakenly opted for the tax-free export option at the time of filing the shipping bill which consequences in IGST being shown as Nil, directing to Customs Authorities denying the refund of IGST paid even after the attempts to correct the error.

A refund claim for exports was filed by Real Prince Spintex from July to September 2017, though it was denied as the applicant had not availed of a higher rate of duty drawback. Despite efforts to rectify this by explaining the CHA’s mistake to the Revenue Department (“the Respondent”), no reply was obtained.

The case was legally pursued by the Real Prince Spintex resulting in a court order directing the Respondent to sanction the IGST refund with 7% simple interest from the shipping bill date till the actual refund date, deducting the differential duty drawback amount.

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The Respondent’s enactment of the court order (“the Impugned Order”) authorized the refund by altering the duty drawback and interest at a 15% rate, deviating from the order of the court. A Special Leave Petition is filed via Respondent against the impugned Order, but the Hon’ble Supreme Court dismissed that. Real Prince Spintex dissatisfied with the Impugned Order, pleaded to the Appellate Authority, which, dated March 11, 2022, denied the appeal.

Therefore, the current writ petition was filed, contesting the Impugned Order. The company of the applicant appealed for a direction suppressing and setting aside the impugned order in an appeal on 11.3.2022 passed by the Commissioner of Appeals, Customs under Section 128A of the Customs Act, 1961 The company petitioner prayed for an order rendering the Respondents to immediately discharge the IGST refund amount which is diminished as a result of the levy of interest of Rs. 11,59,606;

The applicant firm also prayed for an order rendering the Respondents to immediately authorise the interest on the refund at the rate of 7% per annum. under the direction of this Hon. Court.

The applicant firm prayed for a refund of an IGST which was decreased as a consequence of levying an interest of Rs. 11,59,606 and also provided the interest on GST refund at the rate of 7% p.a. following the High Court directions. For the respective parties and considering the facts of the case advocates heard, the Court noted that the impugned order was passed contrary to the directions furnished via the High Court.

The Court, the respondent-authorities to follow the issued directions via the High Court while sanctioning the IGST refund post deducting the differential duty drawback with 7% simple interest as ordered through this Court in the Special Civil Application No.14974 of 2019.

Concluded while permitting the petition “Such exercise shall be completed within four weeks from the date of receipt of the copy of this Order.”