Department cannot take Coercive Action unless a SCN is issued w.r.t Claim of IGST Refund on Exports under the Advance Authorization Scheme

The Rajasthan High Court has ruled that tax authorities cannot take coercive action to recover IGST refunds related to exports under the Advance Authorisation Scheme without first issuing a Show Cause Notice (SCN). The court's decision came as the validity of Rule 96(10) of the CGST Rules, which governs such refunds, is being challenged. The petitioner argued that the revenue department was attempting to recover funds without following proper legal procedure. The court has adjourned the case for further consideration of the challenge to Rule 96(10).

The Hon'ble Rajasthan High Court in Reliance Chemotax Industries Ltd. v. Union of India [Civil Writ Petition No. 6961 of 2023 dated May 13, 2024] has directed the Revenue not to take coercive measures against the Petitioner w.r.t Recovery pertaining to the wrong claim of IGST Refund as the vires of Rule 96(10) have been challenged by the Petitioner and due statutory process viz. issue of Show Cause Notice ("SCN") was not followed by the Revenue.

Facts

M/s. Reliance Chemotax Industries Ltd. ("the Petitioner") is aggrieved by the fact that the Respondents were trying to coercively recover part of the amount of IGST Refund on Exports made under the Advance Authorization Scheme by terming it as an illegitimate refund scheme.

Therefore, the Petitioner has preferred the present Writ Petition and has also challenged the vires of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules")

Issue

Whether coercive recovery measures can be employed by the Revenue Department without the issuance of SCN?

Held

The Hon'ble Rajasthan High Court vide Civil Writ Petition No. 6961 of 2023,observed as under:

• Respondents are directed not to proceed with any coercive steps against the Petitioner without adhering to the statutory requirements of the Rules.
• List the matter further on July 22, 2024, for further consideration on challenge to the vires of Rule 96(10) of the CGST Rules.

Our Comments

Rule 96(10) of the CGST Rules provides that a registered person can claim a refund of IGST paid on the export of goods or services if they do not avail of the benefits of deemed exports, such as Advance Authorisation, Export Promotion Capital Goods Authorisation, Export Oriented Unit status, and others. The said rule is reproduced below for your kind perusal:

"(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have -

"(a) received supplies on which the benefit of Notification No. 48/2017 - Central Tax, dated the 18th October, 2017, except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme or Notification No. 40/2017 - Central Tax (Rate), dated the 23rd October, 2017, or Notification No. 41/2017 - Integrated Tax (Rate), dated the 23rd October, 2017; or

(b) availed the benefit under Notification No. 78/2017 - Customs, dated the 13th October, 2017, or Notification No. 79/2017 - Customs, dated the 13th October, 2017, except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.

Explanation. - For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications."

It must be noted that the vires of Rule 96(10) of the CGST Actare currently under challenge in variousHigh Courts.

Pari Materia reference can be drawn from the Order of the Gujarat High Court in the case of M/s. Sterlite Power Transmission Ltd. Versus Union of India [2023 (75) G. S. T. L. 454 (Guj.)] wherein the Court had entertained several petitions involving the issue of vires of Rule 96(10) of the CGST Rules and has also granted interim protection to the Petitioners concerned. Therefore, by way of interim relief, it was directed that the respondent authority shall not make any coercive recovery from the petitioner in respect of the refund of the integrated tax already paid till further orders.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED