Whether prohibition under section 54(3) of CGST Act for ITC refund is applicable in case of exports of goods which are having NIL rate of export duty?

Deputy Commissioner of State Tax and Additional Commissioner (Appeals) both rejected the claim of taxpayer's ITC refund and when taxpayer approached High Court, council for GST department admitted that orders for rejection are erroneous: High Court set aside the order.

Petitioner:

It is contended by the Petitioner that the rejection of refund application on the ground that levy of Nil Rate of Tax on exported goods (Iron Ore Fines) falling under Second Schedule of the Export Tariff appended to the Customs Tariff Act, 1975 does not qualify for refund of GST paid in view of Clause (i) of Proviso to sub-section (3) of Section 54 of the OGST/CGST Act is arbitrary and non-application of mind.

Aggrieved by the decision of Adjudicating Authority the Petitioner carried the matter in the appeal U/s 107 before the Additional Commissioner of State Tax (Appeal) who has confirmed the order of Deputy Commissioner of State Tax and thereby, sustained the order of rejection of application for refund.

Though, the Petitioner has right of further appeal to Appellate Tribunal U/s 112 of the OGST/CGST Act, since no Tribunal has yet been constituted, the Petitioner has challenged the said appellate order before this Court by way of writ petition.

Held:

When the matter is taken up today for hearing, Mr. S. S. Padhi, Advocate for the GST Department has fairly and graciously admitted that the order of rejection of application for refund as claimed by the Petitioner and upheld by the Appellate Authority is erroneous in view of the order dated 25th November, 2021 passed by this Court in similar case.

It is also submitted that said order would have effect on the subject matter at issue. Thus, the export of “Iron Ore Fines” even though attracts Nil Rate of Tax, in view of Second Schedule to the Customs Tariff Act, 1975, the Petitioner would be entitled to refund on such export transactions. In view of Section 16 of the IGST Act read with Section 54(3) of the OGST/CGST Act, export of goods or services or both is levied with zero-rate. “NIL rate of Tax” falls within the ken of the term “exempt supply” defined under Section 2(47) of the OGST/CGST Act.

A circular clarifying the subject matter was also issued by CBIC on 20th September 2021 in which this question was clarified.

Issue:

Whether the first proviso to section 54(3) of the CGST/SGST Act, prohibiting refund of unutilized ITC is applicable in case of exports of goods which are having NIL rate of export duty?” The clarification issued reads as under:

Clarification:

1. The term ‘subjected to export duty’ used in first proviso to section 54(3) of the CGST Act, 2017 means where the goods are actually leviable to export duty and suffering export duty at the time of export. Therefore, goods in respect of which either NIL rate is specified in Second Schedule to the Customs Tarriff Act, 1975 or which are fully exempted from payment of export duty by virtue of any customs notification or which are not covered under Second Schedule to the Customs Tariff Act, 1975, cannot be considered to be subjected to any export duty under Customs Tarrif Act, 1975.

2. Accordingly, it is clarified that only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54 (3) from availment of refund of accumulated ITC. Goods, which are not subject to any export duty and in respect of which either NIL rate is specified in Second Schedule to the Customs Tariff Act, 1975 or which are fully exempted from payment of export duty by virtue of any customs notification or which are not covered under Second Schedule to the Customs Tariff Act, 1975, would not be covered by the restriction imposed under the first proviso to section 54 (3) of the CGST Act for the purpose of availment of refund of accumulated ITC.

In view of aforesaid conceded position at the Bar, this Court deems it proper to set aside the order of the Appellate Authority passed by the Additional Commissioner of State Tax (Appeal), Bhubaneswar and remand the matter to the said Appellate Authority for deciding the appeal afresh.

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