Madras High Court Rules IGST Refund Cannot Be Denied Merely Because Exporter Claimed Higher Duty Drawback
Court Holds Export Benefits Cannot Be Rejected Solely on Technical Selection of Drawback Code; Customs Authorities Directed to Reconsider Refund Claim
In a significant judgment for exporters, the Madras High Court has ruled that an Integrated Goods and Services Tax (IGST) refund cannot be denied solely because an exporter claimed the higher rate of duty drawback while filing shipping bills. The Court held that the mere selection of a higher drawback code does not automatically disentitle an exporter from claiming a refund of IGST paid on zero-rated exports, particularly where there is no evidence of an impermissible double benefit.
The case arose after customs authorities rejected an exporter’s claim for an IGST refund on the ground that the exporter had opted for the higher rate of duty drawback by selecting the drawback scheme code carrying the suffix “A” in the shipping bills. The department relied primarily on a CBIC circular to conclude that exporters claiming the higher drawback rate were not entitled to an IGST refund.
The Madras High Court disagreed with this interpretation, observing that refund claims must be examined on the basis of the statutory provisions governing exports under the GST regime rather than being rejected solely because of the drawback code selected in the shipping documents. The Court emphasized that procedural or technical errors cannot override substantive legal rights where the exporter is otherwise eligible for a refund.
The Court noted that exports constitute zero-rated supplies under the GST framework, and exporters are ordinarily entitled to claim a refund of IGST paid on exported goods, subject to the conditions prescribed under the law. A refund cannot be refused merely because a higher duty drawback was claimed unless the authorities establish that the exporter has actually availed an inadmissible double benefit prohibited by law.
Referring to earlier judicial precedents, the High Court reiterated that executive circulars cannot curtail or override statutory rights available under the GST legislation and the relevant refund provisions. Where a circular conflicts with the Act or the Rules, the statutory provisions must prevail.
The Court further observed that customs authorities are expected to undertake a factual examination of whether the drawback claimed included only customs duties or also covered the IGST component. A blanket rejection of refund applications merely because of the drawback category selected in the shipping bill is legally unsustainable.
Accordingly, the Madras High Court set aside the impugned orders rejecting the refund and directed the customs authorities to reconsider the exporter’s claim in accordance with law. The Court instructed that the refund application be examined on its merits after verifying the actual benefits availed by the exporter instead of relying exclusively on the drawback code mentioned in the shipping bills.
The judgment is expected to provide significant relief to exporters whose IGST refund claims were rejected solely because they had opted for the higher rate of duty drawback. Tax professionals believe the ruling reinforces the principle that substantive export incentives cannot be denied on technical or procedural grounds in the absence of any statutory prohibition or evidence of wrongful double benefit.
