Case Note & Summary
The petitioner, a company providing information technology and software services, filed four applications for refund of unutilized input tax credit (ITC) on export of services for periods from April 2018 to March 2020. The Assistant Commissioner of Central Tax partially sanctioned the refunds through orders dated 24.04.2020, 28.05.2020, 29.07.2020 and 03.10.2020. The revenue department appealed to the Joint Commissioner of GST Appeals-II contending that the petitioner had not submitted Bank Realisation Certificates (BRCs)/Foreign Inward Remittance Certificates (FIRCs) as required, that the Foreign Inward Remittance Advices (FIRAs) showed the beneficiary’s location as Gurgaon instead of Bengaluru, the purpose of remittance was mentioned as ‘against intercompany receipt’, and the invoices referred to a different bank account number. The revenue also argued that the services were intermediary services under Section 2(13) of the IGST Act and thus not eligible for zero-rated benefit. During the pendency of the appeal, a show cause notice was issued on 06.09.2021 seeking recovery of the refund amount. The appellate authority by order dated 18.05.2022 set aside the refund sanction orders, accepting the revenue’s contentions. Consequently, another show cause notice dated 07.07.2022 was issued, and an ex-parte order dated 26.07.2022 confirmed the recovery. The petitioner challenged these orders by way of a writ petition under Article 226 of the Constitution. The core legal issues were whether non-submission of FIRCs could defeat the refund claim when other evidence existed, whether the services were intermediary, and whether there was violation of natural justice. The petitioner argued that the RBI had discontinued FIRCs, that FIRAs and eBRCs sufficiently proved export realisation, that the discrepancies were immaterial, and that the services were on principal-to-principal basis. The revenue maintained its objections. The High Court, after examining the material, held that the petitioner had established receipt of export proceeds through FIRAs and eBRCs, and that the RBI Circular No.74 dated 26.05.2016 had discontinued FIRCs, making non-submission of FIRCs inconsequential. Minor discrepancies in account numbers and location were not material. The court found that the services provided were not intermediary services as the petitioner developed software on its own account. It also held that the revenue relied on documents not supplied to the petitioner, violating natural justice. Relying on precedents including Abb India vs. Union of India, the court quashed the impugned orders and directed release of the refund within eight weeks. The decision primarily favored the appellant.
Headnote
A) Goods and Services Tax – Refund of Unutilized Input Tax Credit – Export of Services – Requirement of FIRCs – Integrated Goods and Services Tax Act, 2017, Sections 2(6), 16(1)(a); Central Goods and Services Tax Act, 2017, Sections 54(1), 54(4); Central Goods and Services Tax Rules, 2017, Rule 89(2)(c) – The court held that non-submission of FIRCs along with refund claim cannot be a ground to deny refund when the assessee had submitted FIRAs and subsequently eBRCs which established realization of export proceeds. The RBI Circular No.74 dated 26.05.2016 had discontinued issuance of FIRCs, and the assessing authority had accepted the alternative documents. The appellate authority erred in setting aside the refund sanction on this technical ground. Held that refund was eligible. (Paras 12-13) B) Goods and Services Tax – Export of Services – Intermediary Services – Section 2(13) IGST Act – The court found that the services provided by the petitioner were on principal-to-principal basis and not as an intermediary. The petitioner developed software on its own account and provided services to overseas entities, which did not fall within the definition of intermediary services. Therefore, the supply qualified as export of services and zero-rated supply. (Para 13) C) Natural Justice – Reliance on Documents Not Supplied – Violation of Principles of Natural Justice – The court observed that the revenue relied on certain documents and reports, which were not furnished to the assessee, thereby violating principles of natural justice. Following the decisions in M/s Nagesh Enterprises and Commissioner of C. Ex. And Service Tax, Bangalore Vs. M/S Swiss Porsche, the court held that such procedural irregularity vitiates the proceedings. (Paras 13(vi)-(vii)) D) Goods and Services Tax – Refund – Minor Discrepancies in Documentation – Materiality – The court held that minor discrepancies such as difference in account numbers (invoices mentioning account at Bank of America, New Delhi vs. FIRAs showing account at Bengaluru) and location of beneficiary (Gurgaon vs. Bengaluru) were not material to the determination of export realisation and refund eligibility, especially when both accounts belonged to the petitioner. Rejection on such hyper-technical grounds was impermissible. (Para 13) E) Writ Jurisdiction – Recovery Proceedings – Validity – The court quashed the show cause notices and order for recovery, holding that the refund sanction order was correctly passed and the subsequent proceedings initiated by the revenue were without jurisdiction. The court directed release of the refund amount within eight weeks. (Paras 13-14)
Issue of Consideration
Whether the appellate authority was justified in setting aside the refund sanction order on grounds of non-submission of FIRCs, discrepancies in FIRAs, and classification of services as intermediary services, and whether the petitioner was entitled to refund of unutilized ITC on export of services under the CGST/IGST Acts.
Final Decision
The High Court allowed the writ petition and quashed the impugned appellate order dated 18.05.2022, the show cause notices, and the ex-parte order dated 26.07.2022. The court held that the refund sanction orders passed by the Assistant Commissioner were correct and the revenue's objections were technical and unsustainable. The court directed the respondents to release the refund amount to the petitioner within eight weeks.
Law Points
- Refund of unutilized input tax credit cannot be denied for non-submission of FIRCs when FIRAs and eBRCs establish realisation of export proceeds
- RBI Circular discontinuing FIRCs must be considered
- Minor discrepancies in account details and location not relevant if export of services is established
- Services provided on principal-to-principal basis are not intermediary services under Section 2(13) of IGST Act
- Violation of principles of natural justice in relying on documents not supplied to assessee vitiates proceedings.
