21.10.2022: Providing Shipping Bills Of Intangible Goods Not Possible – Orders Rejecting Refund In Case Of Supply of Electricity Set Aside– Andhra Pradesh High Court

The Hon’ble High Court of Andhra Pradesh vide its order dated 26.08.2022 in the matter of M/s Sembcorp Energy India Limited Vs. The State of Andhra Pradesh, Rep. By Its Principal Secretary To Government, Department of Revenue (State Tax), Amaravathi, Guntur in Writ Petition No.11194 of 2021, 11198 of 2021, 11206 of 2021, 11263 of 2021, 17275 of 2021, 28836 of 2021, 30292 of 2021, set aside the orders under challenge denying the refund of Input Tax Credit in case of supply of electricity being zero rated supply, for non-submission of shipping bills.

Facts of the Case: –

  • That a Memorandum of Understanding was entered for the purpose of supply of power between India and Bangladesh. The petitioner participated in the tender process floated by the Bangladesh Power Development Board [for short, “BPDB”] and was awarded contract by BPDB.
  • Pursuant to that, a Letter of Intent for purchase of 250 MW electricity power, was issued on 07.08.2018.
  • Thereafter, the petitioner entered into a Power Purchase Agreements (PPAs) with BPDB and started supplying electricity/electrical energy to BPDB in accordance with the Indian Electricity Act, 2003 and the Rules and Regulations made thereunder.
  • The Central Electricity Regulatory Commission, which is a statutory body under Section 76 of the Electricity Act, 2003, framed Regulations and Guidelines on Cross Border Trade of Electricity (Guidelines for Import/Export (Cross Border) of Electricity, 2018).
  • Further, the necessary guidelines to that effect were issued on December, 2018. As per the Regulations, the participating entities in India, proposing to engage in cross border trade of electricity with neighbouring countries, shall first obtain approval of designated authority appointed by the Central Electricity Authority.
  • That the petitioner obtained approval from the Central Electricity Authority, Ministry of Power, Government of India, entered into Power Purchase Agreement, with a unit in Bangladesh.
  • That the electricity to be supplied by the petitioner to BPDB would be as per the dispatch schedule provided by BPDB and then injected to the Transmission Grid at the interconnection point located in Andhra Pradesh. Reading meters would be installed at the place, where the electricity generated is injected into Inter- State transmission line, so as to record the quantum of electricity that has been supplied by the petitioner to BPDB.
  • Further, the injected electricity would then get transmitted from the interconnection point to Bohrompur substation, West Bengal, India, which is the ‘Delivery Point’ through an Inter-State transmission line. From the said point, the electricity would be transmitted to Bangladesh through the cross-border transmission line, between Bohrompur substation, India and Bheramara substation, Bangladesh.
  • That Regional Energy Account (REA) report is being issued on monthly basis by the Southern Regional Power Committee, which is a unit of Central Electricity Authority of Government of India, indicating the number of units of electricity transmitted by each supplier of electricity to a particular recipient. The report also identifies the destination to which electricity is supplied by the petitioner.
  • Since, export of electrical energy is treated as Zero rated supply under Section 16 of IGST Act, 2017, the petitioner applied for refund of unutilized Input Tax Credit through a refund claim by filing application under Form GST RFD-01A in terms of Section 54 of CGST Act, 2017 read with Section 16(3) of IGST Act, 2017.
  • That on 17.05.2019, the respondent authority issued a memo to the petitioner directing to submit the relevant documents for processing the refund. In pursuance of which, the petitioner except the statement containing the number and date of shipping bills or bills of export, submitted all other documents including the Regional Energy Account showing the units of electricity exported as demanded in the memo.  However, with respect to the shipping bills, the petitioner addressed a letter to the respondent authority stating that ‘there is no requirement under the Customs Law, for filing of shipping bill or any similar documents showing export of electrical energy as required for physical export of tangible goods and generation and filing of shipping bill is not possible for transmission of electricity and there is no requirement for filing of any shipping bill or bill of export for electrical energy.
  • That on 28.06.2019, a Show cause notice was issued to the petitioner proposing to reject the refund claim to an extent of Rs.5,67,94,499/for non-submission of shipping bill and Export General Manifest [EGM] along with refund application, substantiating delivery of electricity at Bohrompur Station. It was also alleged that supply of electricity in the instant case cannot be termed as ‘export of goods’ under Section 2(5) of the IGST Act.
  • The Petitioner responding to the said show cause notice, filed a detailed reply on 24.07.2019. Pursuant to which the respondent authority after granting the opportunity of personal hearing, rejected the refund claim for the month of March 2019 by an adjudication order passed on 20.09.2019.
  • Thereafter, the appeal preferred against the said adjudication order was also dismissed by the impugned order dated 30.04.2020 by the appellate authority, finding that there is no provision of law, exempting the submission of shipping bill in respect of export of electricity and the adjudicating authority is not vested with the powers to condone or overlook non-filing of shipping. Further as the delivery point of electricity is in India, it cannot be said that the impugned transaction amounts to export of goods.

Submissions on the behalf of the petitioners: –

  • It was submitted on the behalf of the petitioners that it is impossible to generate shipping bills as required under Rule 89 of the CGST Rules, 2017, as the supply from one place to another place and from one country to another country is only through transmission lines. Further shipping bill is a custom document and the same cannot be made applicable to show supply of Electricity; which is intangible in nature.
  • That to substantiate that there was export of electricity, the REA reports and other documents have been placed on record, which is sufficient to establish the same. It was also informed that in a meeting held on 18.02.2020, with the Ministry of Power, under the Chairmanship of the Central Electrical Authority, it was decided that monthly Regional Energy Accounts [REAs] issued by the Regional Power Committee [RPC] can be used as a document to establish proof of export in case of electricity.
  • Reference was also made to Notification dated 05.07.2022 issued by the Government of India amending Rule 89 of CGST Rules, 2017, which gives clarification as to how the export of electricity can be proved.
  • With respect to second issue, it was submitted that though in first three cases, the authorities issued show cause notice demanding proof, for export of electricity to Bheramara substation, Bangladesh, but in subsequent notices issued for the months-June, 2019 to September, 2021, they realized their mistake and dropped the said issue in the notice. Therefore, this would apply to earlier notices also.
  • Further, it was submitted that amendment to Rule 89(2) of the CGST Rules, should be given a retrospective effect as it is a beneficial legislature.
  • With respect to maintainability of Writ, it was submitted that the remedy of filing appeal lies before the GST Tribunal, which has not been constituted yet, therefore these writ petitions have been filed before the Hon’ble Court in absence of Tribunal, otherwise also, with respect to the matters where directly writ has been filed against the order-in-original, no useful purpose would be served in preferring an appeal before the Appellate Authority again seeking the very same relief when some of the appeal filed before the Appellate Authority were already rejected, against which, the writ petitions are filed. Having regard to the above circumstances, learned counsel for the petitioner contends that order under challenge requires interference.

Submissions on the behalf of Respondents: –

  • It was submitted on the behalf of the respondents that documents produced by the petitioner do not confirm export of goods, as defined in Section 2(5) of IGST Act. So, in absence of material and documents showing that the energy generated by the petitioner was the same energy which was transmitted from India to Bangladesh, in terms of Rule 89 of CGST Rules, 2017, the order impugned warrants no interference.
  • It was submitted that there is no separate procedure to waive the requirement of producing shipping bills as proof of export.
  • Relying upon Supreme Court judgments, it was submitted that some of the writ petitions filed directly before this Court under Article 226 of Constitution of India without availing the alternate remedy is bad in law.
  • It was informed that rejection of refund is not only on the ground of procedural violation, but also on the ground that the supply of electricity does not amount to exports being the delivery point is only up to a local area.
  • Further the transmission of power supply by the petitioner stands established only till Bohrompur, West Bengal and not beyond that. Hence, they cannot claim any benefit of refund of Input Tax credit. Moreover, the petitioner has no dedicated electrical lines for transmission of electrical energy from their thermal plant to Bohrompur sub-station and has no dedicated International/ Cross Border Transmission lines for transmission of electricity to Bangladesh.  The power is transmitted pursuant to an agreement with Central Electricity Authority under the supervision of Government of India and as such, no benefit can be given for refund of input tax credit.
  • Referring to notification dated 05.07.2022, amending Rule 89 of CGST Rules, 2017, it was submitted that any relief to the petitioner can be extended only be after 05.07.2022 and the same cannot be retrospective in operation.
  • Relying on the judgment of Supreme Court in “Assistant Commissioner of State Tax and Ors Vs Commercial Steel Limited MANU/SC/0872/2021”, an objection was raised and it was submitted that the present writ petitions are not maintainable, as some writ petitions are filed against order-in-appeal and some are filed against order-in-original, without availing the remedy provided under the statutory provisions and approached this court directly under Article 226 of the Constitution of India

Held: –

  • The Hon’ble High Court taking the lead petition as W.P.No.-11194 of 2021 filed against the order in Appeal No.GUN-GST-000-APP-001-20-21 GST, dated 30.04.2020, and considering the submission made, facts of the case, found that in the case in hand the point arise for consideration is, whether the authorities were right in rejecting the refund claim made by the petitioner?
  • That as far as the maintainability of writ petitions are concerned, it was noticed by the Hon’ble Court while entertaining the present writ petition that the Tribunal is not yet constituted by the GST Council and as there is no efficacious remedy available to the Petitioner, except approaching this court. Moreover, the respondents’ contention that the petitioner has to approach Tribunal under section 112 of CGST Act, when and where it is constituted, cannot be accepted as it may cause irreparable loss to the petitioner.
  • However, with regard to the Writ Petitions filed directly against the order-in-original without availing the appellate remedy, the court was inclined towards the contention raised by the Petitioner, wherein it is urged that when appeals of similar issues are rejected by Appellate authority, it would serve no useful purpose to file the same again before the same authority, by the same party, seeking the very same relief.
  • Thereafter, considering the case on merits, it was found by the Hon’ble Court after taking note of the law stated in section 16 of the IGST Act, that a reading of Section 16(3) of IGST Act will clearly indicate that a person making zero-rated supply shall be entitled to the claim under two options, mentioned in Clauses (a) and (b). In so far as Clause (b) is concerned, the claim would be in accordance with the provisions of Section 54 of CGST Act and the Rules made thereunder.
  • It was found that it is not in dispute that in terms of provisions of Section 54, the petitioner is entitled to the claim of refund as it nowhere refers to submission of shipping bills for refund claim, however, the authorities in the present case have denied the claim of refund referring to Rule 89 (2) (b). It seems that a situation of this nature would not have been examined at the time of incorporation of Rule 89 in the statute books.  The transmission of electricity across the border is a phenomena that came into existence after the incorporation of Rule 89, and as such, suitable amendments ought to have been made at the time when permissions are granted for transmission of electricity to other countries.
  • The Hon’ble taking note of the transaction involved as well as the facts of the case, found that the electricity reaches Bangladesh by cross border transmission line, between Bohrompur sub-station and Bheramara sub-station of Bangladesh, through Power Grid Company Bangladesh. Further the material on record also shows that the actual units of electricity supplied by the petitioner to Bangladesh is recorded in Regional Energy Account, issued on monthly basis, by Southern Regional Power Committee, which is a unit of Central Electricity Authority in India.
  • The supply of electricity is treated as a Zero-rated supply, so the petitioner applied for the refund claim in the prescribed forms. Moreover, it is not in dispute that the petitioner has generated electrical energy and transmitted through transmission lines of Power Corporation of India and the same reached Bohrompur sub-station and transmission to Bangladesh would be under the supervision of Central Electricity Authority, which is a Government of India undertaking.
  • The Hon’ble High Court noticing that three writ petitions were rejected on two grounds; non-submission of shipping bills as required under Rule 89 (2); ii. no material show that the petitioner has not exported electricity to Bangladesh.  Whereas, in other four writ petitions, the refund claims were rejected on the sole ground that shipping bills were not produced by the petitioner.  Further, the perusal of rejection orders would show that the authorities later realised their mistake and in the subsequent show cause notices for the period June, 2019 to September, 2021, does not dispute export of energy to Bangladesh as the claim came to be rejected due to non- production of shipping bills only. Hence, transmission to Bangladesh by the petitioner was accepted. Therefore, the contention raised on the behalf of the respondents that ‘the petitioner never transmitted energy across the border’ cannot be accepted as it is now verifiable.
  • Thereafter, the Hon’ble Court considering another issue involved with respect to rejection of refund claim for non-submission of shipping bills, found that the petitioner made multiple representations to various authorities, informing them about the difficulty in producing shipping bills for export of electricity. Then the matter was taken up to the Regional Power Committee meeting, in which it was stated that REA reports made available by Regional Power Committee on monthly basis can be used as proof of export.
  • The Hon’ble Court taking note of amendments in Rule 89 through notification dated 05.07.2022, found that reading of the amendments, apart from other things, makes it clear that the petitioner herein can now prove the quantity of electricity transmitted basing on the statement of scheduled energy for export of electricity issued by Regional Power Committee [RPC] Secretariat, as a part of Regional Energy Account [REA] under clause (nnn) of Sub-Regulation (1) of Regulation (2) of Central Electricity Regulatory Commission.
  • Further, the amendment to Rule 89 (2)(ba) of CGST (Amendment) Rules, 2022 [July, 2022] clearly show that the number and date of the export invoices, details of energy exported, tariff per unit of export as per agreement, along with the copy of scheduled energy for exported electricity by Generation Plants, issued by the Regional Power Committee Secretariat, can be made the basis to show the number of units of electricity, transmitted and supplied across the border.
  • The Hon’ble Court considering the ‘situation’ involved in the present matter discussed the Legal maxim ‘Lex Non Cogit ad impossibilia’, which means that ‘the law does not compel a man to do things which he cannot possibly perform.’
  • The Hon’ble Court, thereafter, referring to the judgments dealing with the aspect of impossibility of compliance in the matter of Wipro Limited vs. Union of India 2013 (29) STR 545 (Del.) = MANU/DE/0414/2013, M/s. PVR Limited vs. State of Telangana – MANU/TL/0306/2019, Commissioner of Customs vs. Frontier Aban Drilling (India) Limited 2010 (254) ELT 63 (Mad.) = MANU/TN/0035/2010, found that the Rule 89 of CGST Rules, 2017 and the amendment made thereto cannot curtail the benefit of Input Tax Credit. The petitioner, in our view, was justified in not producing shipping bills to prove the quantity of energy units transmitted and that the reports of REA filed by the petitioner, could be made the basis to deal with the claim for refund of Input Tax Credit.
  • The Hon’ble Court then considering the issue whether amended Rule 89(2) of CGST Rules, 2022 is clarificatory or declaratory, referred to Circular No.175/07/2022-GST dated 06.07.2022 issued by Ministry of Finance, Government of India, and found that the Circular clearly establishes that amendment to Rule 89 of CGST (Amendment) Rules, 2022 was carried out to cure the defect in Rule 89 of CGST Rules, 2017, because of the problem faced by power generating units in filing refund claims of unutilised Input Tax Credit on export of electricity. Further the amendment was made only to clarify the anomaly that was existing with regard to production of material evidencing export of a thing which is intangible in nature.  This clarification came to be made since the situation namely transmission of energy could not have been examined when Rule 89(2) was incorporated in the Statute book.  Moreover, the production of shipping bills will not prove or establish by any means the quantity of energy transmitted.  Hence, it cannot be said the amendment is declaratory, and is only clarificatory in nature.
  • The Hon’ble Court considering the next question involved ‘whether the notification dated 05.07.2022 being clarificatory in nature can be applied retrospectively or not’, referred to the decisions of B. Jodha Mai Kuthiala v. Commissioner of Income Tax, Punjab, Jammu & Kashmir and Himachal Pradesh] (1971) 82 ITR 570 (SC), Commissioner of Income Tax vs. Alom Extrusions Limited (2010) 1 SCC 489, Hon’ble Supreme Court in Commissioner of Income Tax vs. Vatika Township Private Limited (2015) 1 SCC 1, [T. Kaliamurthi v. Five Gori Thaikkal Wakf (2008) 9 SCC 306, found that from the ratio laid down in the aforesaid judgments, it is very clear that any benefit that gets accrued by way of legislation cannot be denied/curtailed, more so, when it is clarificatory in nature like the present one and as such it has to be made retrospective in operation.
  • Further the petitioner’s contention with respect to retrospective effect is also substantiated by the department action through the deficiency memo dated 07.07.2022 issued by the Assistant Commissioner, Nellore Division, for the refund claim filed for the period January, 2022 to March, 2022. The deficiency memo has advised the Petitioner to resubmit the refund application as prescribed vide CBIC Circular No.175/07/2022-GST dated – 06.07.2022 along with all supporting documents.
  • From the above, it is clear that the department has applied the Notification No.14/2022 – Central Tax dated 05.07.2022 even for the refund claim filed for the period prior to 04.07.2022 acknowledging the amendment as retrospective in operation.

The Hon’ble Court with the above findings, allowed the writ petitions and set aside the orders under challenge and remanded the matter back to the respondent authorities, to deal with the claim of refund in terms of this common order of the Court.  The petitioner shall file relevant reports evidencing transmission of electricity before appropriate authorities, if not already filed.


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