This Tax Alert summarizes a recent ruling of the Punjab & Haryana High Court (HC)1 on the validity of paragraph 4.6 of Circular No. 197/09/2023-GST dated 17 July 2023, which denies refund of interest paid under Rule 96A of Central Goods and Services Tax Rules, 2017 (CGST Rules) where export proceeds are realized after the prescribed period.
The key observations of the HC are:
- The
Circular itself recognizes subsequent realization of export proceeds and
permits refund of the tax paid under Rule 96A. Therefore, retention of
interest after refund of the underlying tax must have an independent
statutory basis.
- Section
54(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) expressly
contemplates refund of tax, interest paid thereon, and any other amount
paid by a person, and is broad enough to cover refund of interest paid
under Rule 96A.
- Neither
Section 54 of the CGST Act nor Rule 96A of the CGST Rules contains any
provision requiring retention of interest once the tax paid under Rule 96A
has been refunded.
- Circular
cannot create a liability or impose restriction that is not contemplated
by the Act or the Rules. Paragraph 4.6 of Circular No. 197/09/2023-GST, to
the extent it denies refund of interest despite refund of the
corresponding tax upon realization of export proceeds, travels beyond the
statutory framework.
Basis above, HC
allowed the refund of interest paid under Rule 96A.
Comments:
- Exporters
may revisit historical interest payments in similar cases and evaluate
potential refund opportunities, particularly where export proceeds were
ultimately realised.
- Where
the two-year refund period has expired, taxpayers may explore whether
interest can nevertheless be claimed without limitation, considering its
retention lacks statutory basis.
- The
ruling may prompt the Government to revisit existing administrative
guidance and provide a uniform mechanism for dealing with similar interest
refund claims.
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