The Hon’ble High Court of Gujarat vide its order dated 7^th April 2022 in the matter of I-Tech Plast India Pvt. Ltd. Vs. State of Gujarat in R/Special Civil Application No. 3653 of 2021 held that the amount of ITC utilized for payment of IGST on exports shall be re-credited to the electronic credit ledger when the refund claimed mistakenly is paid back with interest in Form DRC-03.

The writ-applicant preferred the present writ application before the Hon’ble High Court praying for re-crediting/restoring the ITC amounting to Rs. 1,39,49,810/- in the electronic credit ledger along with interest, of the writ -applicant.

Facts: –

• The writ-applicant is engaged in the manufacturing of various types of toys and is registered under the provision of Companies Act, 1956 and also duly registered under the provisions of Goods and Service Tax Act, 2017.
• The writ applicant having a ‘advance license’ is permitted to import raw-material without payment of any import duty and is availing the benefit of Notification No. 79/2017 – Customs dated 13.10.2017 for importing its raw-material.
• That inadvertently during the relevant period i.e., Financial Year 2017 to 2021, the writ applicant exported its finished goods with payment of IGST (utilizing ITC) instead of exporting under ‘Letter of Undertaking’ (LoU) and received auto refund of IGST paid at the time of exports.
• That upon realizing the mistake the writ-applicant paid the requisite IGST along with interest (Rs.1,39,49,810/- along with interest of Rs. 30,87,551/-) and intimated the same to the GST department vide its letter dated 13.08.2020.
• That later vide letter dated 24.08.2020 informed the respondent authorities, ‘the writ- applicant is availing the benefit of Notification No. 79/2017 – Customs dated 13.10.2017 and hold advance license for free importation of raw-materials. Further due to lack of knowledge of Notification No. 53/2018– C.T. dated 09.10.2018, the writ-applicant exported its finished goods produced from imported raw-material with payment of IGST by utilizing the accumulated ITC. However, when the writ-applicant realized that ITC cannot be utilized for payment of IGST on export of Goods as per Rule 96(10) of the CGST rules, the writ-applicant as an honest tax payer voluntarily paid the amount of said IGST with interest (Rs. 1,39,49,810/- along with interest of Rs. 30,87,551/-) in FORM DRC – 03’.
• That in view of the above the writ-applicant requested the GST department to restore/re-credit the ITC amounting to Rs. 1,39,49,810/- to the electronic credit ledger. The writ-applicant in this regard met various officers of GST Department, through its later dated 16.10.2020 brough the facts to the knowledge of Chief Commissioner, SGST and also sent an e-mail dated 23.10.2020 to Commissioner of State Tax, but the ITC was not restored.  Thus, the present writ-application being moved by the writ-applicant.

Writ-applicant submissions: – 

• It was submitted on the behalf of writ applicant that it has voluntarily paid the said IGST on exports with interest, the corresponding ITC must be re-credited to its electronic credit ledger.
• That despite the oral as well as written representations by the writ-applicant, the ITC has not been re-credit/restored on the ground that there is no mechanism whereby ITC can be restored upon voluntary payment of IGST, and it must not suffer due to lack of appropriate mechanism.
• The action of respondents in the present case in not in consonance with Article 265 and Article 300-A of the Constitution of India, 1950.

On the other hand, it was submitted on the behalf of the respondents that the writ-application is not maintainable as the writ-applicant is not at all entitled to claim the refund.  The amount paid in DRC-03 voluntarily cannot be refunded.

Held: –

• The Hon’ble High Court after considering the submissions from the both sides, facts of the case and law applicable on the issue, observed that under IGST Act, a person having advance license shall be eligible for importing raw-material without payment of import duty. Further, Section 16(1)(a) provides export of goods as ‘Zero rated supply’ and Section 16(3) states that the person making ‘Zero rated supply’ shall be eligible to claim refund under a ‘bond’ or ‘Letter of ‘Undertaking’ without payment of IGST and claim refund of unutilized credit, Secondly, supply goods or services on payment of IGST and claim refund of the tax so paid.’
• That as per Rule 96(10) of the CGST Rules, a registered person importing raw-material without payment of import duty under the advance license shall not be eligible for utilizing accumulated ITC for payment of IGST on exports of goods or services.
• That in the present case the writ-applicant opted for second option i.e.,’ payment of IGST on export of goods’, however inadvertently utilized ITC for payment of IGST on export of goods, which is not permissible as per rule 96(10) of the CGST rules, and the amount of tax paid as IGST was automatically refunded. Later, on realizing the mistake the writ-applicant separately paid the requisite IGST with interest.
• That as far as, the erroneous grant of refund and such amount paid back by the writ-applicant along with interest, is not in dispute and this transaction is nullified. The amount in dispute is the ITC initially utilized for payment of IGST which as per the respondent authorities, the writ-applicant is not entitled for refund, as stated under rule 96(10) of the CGST rules.
• It was further observed that there is no question of refund of ITC at all, the issue involved in the matter is restoration of ITC in the electronic credit ledger and not a refund, hence reference to rule 96(10) on behalf of the respondent authorities is not tenable.
• That ‘If the authorities have accepted that there was an error and resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored.’

The Hon’ble High Court without going into the merits of the case, disposed of the writ-application with the above findings and directed the respondent authorities to re-credit/restore the Input Tax Credit of Rs. 1,39,49,810/- in the electronic credit ledger of the writ-applicant within two weeks of the receipt of the order.