Venus Jewel vs Union Of India And 5 Ors on 8 April, 2024

Here's a summary of the judgment:

1. Outcome

The Bombay High Court allowed the petition:
* Declared the impugned Circular dated 18 July 2019 as not applicable to the petitioner’s refund applications/claim.
* Quashed and set aside the impugned orders dated 11 July 2022 and 5 August 2022 rejecting the refund applications.
* Directed the respondents to refund the amount of Rs. 5,26,80,126/- (IGST) to the petitioner within three weeks from the date of the order.
* Ordered simple interest at the rate of 9% per annum on the refund amount, with a further 9% interest if not paid within the stipulated three weeks.

2. Core Issue

The core issue was whether the petitioner was entitled to a refund of Integrated Goods and Service Tax (IGST) totaling Rs. 5,26,80,126/- paid on confirmed exports (rough and cut/polished diamonds) made on a "consignment/exhibition basis" between July 2017 and December 2018, when such refund was denied due to:
1. Non-alignment of export data between the Customs’ ICEGATE Portal and the GST Common Portal.
2. The application of a Circular dated 18 July 2019 which, according to the petitioner, illegally restricted the scope of "zero-rated supply" for such transactions.
3. The subsequent rejection of a formal refund application under Section 54 of the CGST Act as being time-barred, despite shipping bills being deemed refund applications under CGST Rules 96 and 96A.

3. Key Facts

• Petitioner: Venus Jewel, a partnership firm, registered under GST, engaged in the export of diamonds, holding a Four Star Export House status.
• Export Method: Petitioner exported goods on a "Consignment/Approval/Exhibition basis" (July 2017 to December 2018).
• Transaction Flow: Goods were initially exported with shipping bills. Upon approval by foreign consignees, 'final invoices' were generated for confirmed sales. Unapproved goods were re-imported (Bills of Entry issued by Customs, exempt from customs duty).
• IGST Payment: The petitioner opted to pay IGST on the confirmed goods, totaling Rs. 5,26,80,126/- for the period, declared through GSTR-3B and GSTR-1 on the Common Portal.
• Refund Attempts & Challenges:
  • Petitioner sought to amend shipping bills to reflect final confirmed quantities for refund, which Customs refused, citing lack of practice.
  • GST authorities rejected the refund application due to non-consonance between shipping bills and GST returns, and the Common Portal's inability to handle invoice dates after shipping bill dates for consignment exports.
  • A Circular dated 18 July 2019 (CBEC-20/06/03/2019-GST) was issued by CBIC, which the petitioner contended illegally narrowed the definition of "zero-rated supply" for consignment exports if tax was paid after shipping bills or not confirmed within six months. The petitioner stated this circular was not timely communicated or published in the Official Gazette and could not apply retrospectively.
  • The petitioner highlighted a similar case, M/s. Star Rays, where technical glitches were rectified, and a refund was granted by the department.
  • Following advice from Respondent No. 4 (CGST), the petitioner filed a formal refund application under Section 54 of the CGST Act on 28 February 2022 (later rectified and re-filed on 30 April 2022).
  • The applications were rejected by Respondent No. 4 on 11 July 2022 and 5 August 2022, primarily on the grounds of being time-barred and inappropriately filed under Section 54.
• Departmental Conflict: CGST authorities argued the matter fell under Customs jurisdiction (Rule 96A), while Customs authorities stated their role was limited to generating scroll numbers for already sanctioned refunds and not competent to sanction/reject IGST claims.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Venus Jewel):
* Exports on payment of IGST are "zero-rated supplies" under Section 16(1) of the IGST Act, entitling the petitioner to a refund as per Rules 96 and 96A of the CGST Rules.
* Shipping bills are statutorily deemed as refund applications under Rules 96/96A, which were filed timely, so the claim cannot be time-barred.
* The denial of refund is solely due to technical glitches and non-alignment of data between Customs and GST portals, which is not the petitioner's fault.
* The Circular dated 18 July 2019 is ultra vires the parent statutes (CGST/IGST Acts) as it limits and narrows the scope of "zero-rated supply," was not properly notified/communicated, and cannot apply retrospectively.
* The department’s action of compelling a Section 54 application at a later stage and then rejecting it as time-barred is illegal and arbitrary.
* The department had granted a refund in an "identically situated" case (M/s. Star Rays).
* The retention of the IGST amount is without authority of law, violating fundamental rights under Articles 14, 19, 21, 300A, and 265 of the Constitution.
* Departmental authorities are in conflict, disowning responsibility for the refund.

Revenue (Union of India & Ors.):
* The petitioner has an alternate remedy of appeal against the rejection order.
* The refund applications filed under Section 54 of the CGST Act on 30 April 2022 were time-barred as per Section 54(1), which prescribes a two-year limitation from the relevant date, even considering Covid-19 relaxations.
* Respondent No. 4 (CGST) contended that refund for exports with duty payment falls under Rule 96A of CGST Rules, which should be handled by Customs authorities, and thus CGST is not the sanctioning authority.
* Respondent Nos. 5 & 6 (Customs) contended their role is limited to generating scroll numbers for already sanctioned IGST refunds, the process is automatic, and they are not the competent authority to sanction or reject claims.
* The Circular dated 18 July 2019 provided necessary clarifications regarding "zero-rated supply" for consignment goods.
* Reliance was placed on M/s. Cummins Technologies India Private Limited to argue that the petition was barred by limitation under Section 27 of the Customs Act.

5. Court’s Reasoning

• Rules 96 & 96A Override: The Court emphasized that under Rules 96 and 96A, the shipping bills themselves are deemed applications for refund of IGST on exported goods. The petitioner had complied with all mandates of these rules. The respondents did not dispute the applicability of these rules or the petitioner's compliances.
• Systemic Failure, Not Taxpayer's Fault: The Court found that the refund was denied due to "non-compatibility of the data between the two authorities, namely, Customs Department and the GST Department, as also for the reason of non-compatibility with the electronic portals." This systemic failure cannot be a ground to deny a legitimate refund to the petitioner.
• Illegal Time-Barred Rejection: Forcing the petitioner to file a fresh application under Section 54 at a later date, and then rejecting it as time-barred, was illegal, as the original shipping bills (deemed refund applications) were timely.
• Circular's Invalidity/Non-Applicability: The Circular dated 18 July 2019 could not apply retrospectively to the period of dispute (July 2017-December 2018). Furthermore, a circular cannot override or narrow the scope of substantive statutory provisions like Section 16 of the IGST Act or Rules 96/96A, which unequivocally treat such confirmed exports as "zero-rated supplies" eligible for refund. Applying the circular would render legal provisions nugatory.
• Precedent of Star Rays: The Court noted the department's inconsistent stand, as it had granted a refund in the "identically situated" Star Rays case after acknowledging technical glitches.
• Departmental Conflict Deplored: The Court expressed strong disapproval of the conflicting stands taken by the CGST and Customs authorities, both disowning responsibility for the refund while not disputing the petitioner's entitlement. This "shocking state of affairs" cannot prejudice the assessee.
• Constitutional Mandate (Article 265): Retention of IGST in this case amounted to collecting/retaining tax without authority of law, a direct violation of Article 265 of the Constitution.
• Distinguishing Cummins Technologies: The Court distinguished the Cummins Technologies case, stating it was inapplicable as it dealt with Section 27 of the Customs Act and did not address the specific implications of Rules 96/96A concerning shipping bills as refund applications.
• Entitlement to Interest: Given the illegal retention of funds, the petitioner was entitled to interest, citing precedents from the Gujarat High Court and its own previous decisions.

6. Statutory References

• Constitution of India: Articles 14, 19, 21, 226, 265, 300A
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 2(94) - "Registered Person"
  • Section 37 - "Furnishing details of outward supplies"
  • Section 54 - "Refund of tax" (sub-sections 1, 3, 5, 10, 11)
  • Section 56 - "Interest on delayed refunds"
  • Section 79 - "Recovery of tax"
  • Section 146 - "Common Portal"
  • Rule 96 - "Refund of integrated tax paid on goods exported out of India" (sub-rules 1, 2, 3, 4)
  • Rule 96A - "Export of goods or services under bond or Letter of Undertaking" (sub-rules 1, 2, 3, 4, 5, 6)
  • Rule 10-B (Aadhaar authentication)
  • Form GSTR-1, Form GSTR-3B, Form GST RFD-11
• Integrated Goods and Service Tax Act, 2017 (IGST Act):
  • Section 7 (Scope of supply)
  • Section 16(1) - "Zero-rated supply"
  • Section 50(1) (Interest on delayed payment of tax)
• Customs Act, 1962:
  • Section 27 (Claim for refund of duty)
  • Customs Notification No. 45/2017 dated 30 June 2017
• Partnership Act, 1932
• Foreign Trade Policy 2015-2020 (FTP): Paragraph 4.53, 4.93 (Handbook)

7. Precedents Cited

• M/s. Star Rays v/s. Union of India & Ors. (Writ Petition No.2483 of 2018, Bombay High Court, 22 October 2018): Relied upon by petitioner. Acknowledged by the Court as an "identically situated" case where the department had rectified glitches and granted refunds.
• Suo-motu Writ Petition (C) No.3 of 2020 (Supreme Court, 10 January 2022): Relied upon by petitioner. Regarding the extension of limitation periods due to Covid-19.
• Saiher Supply Chain Consulting Private Limited Vs. Union of India & Ors. (Bombay High Court, 12 January 2022): Relied upon by petitioner. Confirmed the applicability of the Supreme Court's limitation extension to Section 54 refund applications.
• Delhi Metro Rail Corporation Ltd. V/s. The Additional Commissioner, Central Goods and Services Tax, Appeals II & Ors. (Writ Petition (C) No.6793 of 2023, Delhi High Court, 18 September 2023): Relied upon by petitioner. Cited for the principle that retention of tax without authority of law is impermissible.
• M/s. Vimla Food Products v/s. Union of India & Ors. (R/S Special Civil Application No. 16028 of 2020, Gujarat High Court, 21 December 2021): Relied upon by petitioner. Cited for the entitlement to interest on delayed refunds for "zero-rated supplies" and criticism of authorities for ignoring binding decisions.
• M/s. Cummins Technologies India Private Limited vs. Union of India & Ors. (Writ Petition No. 4193 of 2022, Bombay High Court, 28 August 2023): Cited by Revenue, distinguished by Court. Revenue used this to argue limitation under Section 27 of Customs Act; the Court distinguished it as not relevant to Rules 96/96A.
• Star Engineers (I) Pvt. Ltd. Vs. Union of India & Ors. (Writ Petition No. 15368 of 2023, Bombay High Court): Relied upon by Court. A similar case involving technical glitches, where the Court awarded simple interest.
• The Hongkong and Shanghai Banking Corporation Ltd. v/s. The Union of India & Anr. (Writ Petition (L.) No. 24184 of 2023): Relied upon by Court. Cited for the principle that retention of amounts without authority in law is without jurisdiction.
• Amit Cotton Industries Vs. Principal Commissioner of Customs (2019) 107 taxmann.com 167 (Gujarat) (upheld by Supreme Court in SLP (Civil) Diary No.5502 of 2021): Referred to within Vimla Food Products. Settled the issue of IGST refund for "Zero Rated Supplies".
• E.I. Dupont India (P) Ltd. Vs. Union of India (2014) 305 ELT 282 (Guj): Referred to within Vimla Food Products. Stressed adherence to higher court decisions.
• Union of India Vs. Kamlakshi Finance Corporation Ltd. (1991) 55 ELT 433: Referred to within Vimla Food Products. Stressed adherence to higher court decisions.