Mobile Shoppe vs Union Of India on 20 January, 2023

Judgment Summary: Mobile Shoppe vs Union Of India

Date of Judgment: 20 January 2023
Bench: Hon’ble Ms. Justice Sonia Gokani and Hon’ble Mrs. Justice Mauna M. Bhatt, High Court of Gujarat

1. Outcome

The petition was allowed. The Court directed the respondents to pay the withheld IGST refund along with statutory interest to the petitioner. However, the Court granted the respondent authorities a final period of eight weeks to conclude their investigation. If the investigation yields nothing incriminating, the refund with interest must be remitted to the petitioner’s account without any further action required from the petitioner.

2. Core Issue

The central legal questions before the High Court were:
1. Whether the Central Goods and Services Tax (CGST) authorities have the jurisdiction to scrutinize, investigate, and effectively block an IGST refund on exports, when the proper officer for processing such refunds under the statutory scheme (Rule 96 of CGST Rules) is the Customs authority.
2. Whether the CGST authorities can legally insist on a second e-way bill for a "bill to ship to" transaction after the movement of goods for export is complete and has been cleared by Customs.

3. Key Facts

• Business Model: The petitioner, Mobile Shoppe, is an exporter of mobile phones. It procures goods through its sister concern, M/s. Anjali Enterprise, which in turn directs its vendors to deliver the goods directly to the airport for export. This constitutes a "bill to ship to" transaction model.
• Documentation: For the movement of goods from the original vendor to the airport, a single e-way bill was generated. The petitioner would then file a shipping bill for export.
• Refund Mechanism: As exports are zero-rated supplies under Section 16 of the IGST Act, the petitioner paid IGST on exports and claimed a refund. Under Rule 96 of the CGST Rules, the shipping bill filed by the exporter is treated as the refund application, which is processed and sanctioned by the Customs authorities.
• Departmental Action:
  • On 31.07.2020, CGST authorities (Respondent No. 2) conducted a search at the petitioner’s premises.
  • They raised an objection regarding the absence of a second e-way bill for the transaction between M/s. Anjali Enterprise and the petitioner.
  • Based on instructions from the CGST authorities, the Customs department detained the petitioner's export consignment.
  • After verification, the Customs authorities released the goods on 07.08.2020, and they were duly exported.
  • Despite the export clearance, the CGST authorities issued summons to the petitioner and instructed the Customs department to withhold the IGST refund, prompting the petitioner to file this writ petition.

4. Arguments

Petitioner's Arguments (Mobile Shoppe):
* Lack of Jurisdiction: The CGST department has no jurisdiction to re-adjudicate or scrutinize an IGST refund on exports, as Rule 96 of the CGST Rules designates the Customs authorities as the proper officer for this purpose.
* "Bill to Ship to" Model: A press release by the Central Board of Indirect Taxes and Customs (CBIC) dated 23.04.2018 clarifies that only one e-way bill is required for "bill to ship to" transactions. This clarification is binding on the department.
* Purpose of E-way Bill: The requirement to carry an e-way bill (Rule 138/138A) is for verification during the movement of goods. Conducting a post-facto verification after the movement is complete and the transaction is accounted for is contrary to the legislative intent.
* Coercive Action: The department’s actions, including detaining export goods and threatening arrest without any prima facie adjudication of liability, are illegal and without jurisdiction.

Respondents' Arguments (CGST Department):
* Discrepancies Found: The search revealed that the petitioner had declared a wrong address on export documents where no business activity was conducted.
* Missing E-way Bill: The petitioner failed to produce a valid e-way bill for the supply from its sister concern (M/s. Anjali Enterprise) to itself, which raised suspicion about the actual movement of goods and the validity of the Input Tax Credit (ITC) claimed.
* Invalid Tax Invoice: The tax invoice issued by the sister concern was allegedly not compliant with prevailing notifications.
* Need for Investigation: An inquiry under Section 70 of the CGST Act was essential to verify the supply chain, the movement of goods, and the legitimacy of the ITC availed and utilized for paying IGST on exports. The summons was issued to safeguard government revenue.

5. Court’s Reasoning

• The Court strongly questioned the jurisdiction of the CGST authority (Respondent No. 2) to interfere with the export refund process, which falls squarely within the domain of the Customs authorities under Rule 96.
• It noted that once an e-way bill is generated and the goods are physically verified and cleared for export by the competent Customs authority, the export itself cannot be disputed by another wing of the government on procedural grounds like a missing second e-way bill.
• The Court found merit in the petitioner's reliance on the CBIC clarification regarding a single e-way bill for "bill to ship to" transactions.
• It observed that the Customs department, despite an initial detention at the behest of the CGST department, ultimately allowed the export after its own verification, implying that the goods and the transaction were found to be in order for export purposes.
• The Court took note of the fact that despite the passage of significant time, the department had not issued any show-cause notice, yet the petitioner's refund remained blocked.
• To balance the interests of justice, the Court held that the petitioner, having completed the export in compliance with Customs procedures, was entitled to the refund. However, it provided a final opportunity to the department to conclude its investigation in a time-bound manner.

6. Statutory References

• Integrated Goods and Services Tax Act, 2017:
  • Section 16: Defines "zero-rated supply."
• Central Goods and Services Tax Act, 2017:
  • Section 67: Power of inspection, search, and seizure.
  • Section 70: Power to summon persons to give evidence and produce documents.
• Central Goods and Services Tax Rules, 2017:
  • Rule 96: Governs the process for refund of IGST paid on goods exported out of India.
  • Rule 138 & 138A: Provisions related to the e-way bill and documents to be carried with goods in transit.
• Customs Act, 1962:
  • Section 99B: Mentioned in the context of Customs' power of authentication and suspending clearance.

7. Precedents Cited

• Vodafone Idea Limited vs. Deputy Commissioner of Income-tax and others (2020) 421 ITR 253 (Bombay High Court): Cited in the context of powers to withhold refunds, highlighting that such powers are not unlimited and must be exercised based on a bona fide opinion recorded in writing.
• Ganesh Sales Corporation vs. State of Gujarat (2016) 68 taxmann.com (Gujarat): Referenced to establish that powers to withhold refunds are subject to specific conditions precedent, including the formation of an opinion by the authority that the grant of refund is likely to adversely affect revenue.