High Court Allowed ITC Refund for Export of Services Without FIRC, on Basis of CA Certificate and Other Documents

The Petitioner is engaged in the business of providing services with respect to international and domestic transportation of customers' goods, clearance, warehousing, and allied services. Such service qualifies as export. The Petitioner has obtained approval from the RBI to receive foreign currency on a netting-off basis, i.e., receiving foreign currency on export after netting off any foreign currency payments made every month. Accordingly, only the net amount is received in the EEFC Bank account. The petitioner filed a refund application for the period of April to June 2021 and submitted all the documents, including the CA Certificate and approvals from the RBI. However, the Respondent rejected the refund application non non-submission of FIRCs under Rule 89(2)(c) of CGST Rules. Therefore, the Petitioner filed an appeal before the Hon’ble High Court.

Therefore, the impugned order is set aside, and the respondent is directed to issue the refund claim without insisting on FIRC.

1. Brief Facts of the case:

• M/s Kuehne Plus Nagel Private Limited (“The Appellant”) is engaged in the business of providing services concerning international and domestic transportation of customers' goods, clearance, warehousing, and allied services.

• Such supply of services qualifies as export of services in terms of Section 2(6) of the IGST Act, 2017.

• Considering the business model, the RBI permitted the petitioner to operate a global clearing account wherein the Appellant is allowed to receive foreign currency on export after netting off any payment in foreign currency monthly, subject to the following condition:

• Maintaining a minimum credit balance of ₹12 lakhs in favour of the petitioner. Any shortfall will be replenished by the Hamburg office.
• The petitioner is required to submit an NOC from the Income Tax Authority every month concerning the amounts payable which has not been remitted but have been duly accounted for by the Petitioner.

• The petitioner has duly complied with all the above-mentioned conditions, and the same has also been acknowledged in the impugned order.

Read Also: All You Need to Know About Merchant Export Under GST

• The mechanism of receipt of foreign currency is as follows:
  
  • The petitioner has both export receivables and forex payables with its group entities across the globe.
  • Therefore, the petitioner has followed the common clearing mechanism globally since 1997.
  • Under this mechanism, the consideration in foreign currency is received after netting off the payment to be made by the petitioner in foreign currency. Therefore, only the net amount is received in India.
  • Such a scheme is duly approved by the RBI.
  • For example, if Foreign currency receivables are USD 1,000 and foreign currency payables are USD 800, then only USD 200 is brought into India.
  • Such an amount is also certified by an Independent Chartered Accountant after verification of the underlying documents every month. Such a certificate is duly submitted to the authorized bank on behalf of the RBI every month.

• The petitioner exports services under LUT without payment of IGST. Therefore, the Petitioner is eligible for a refund of unutilized ITC.

• The petitioner filed a refund application for ₹1,82,99,406 for the period from April to June 2021 on 03.03.2021. Such application was duly acknowledged by the GST Department.

• Later on, the department sought additional documents. To the FIRC requirement, the petitioner submitted that, as per the RBI Approval, the foreign currency is received on a monthly net-off basis at the pan-India level. Therefore, the FIRAs displayed only the net amounts received by the petitioner.

• The petitioner also submitted a Certificate from an independent Chartered Accountant certifying the quantum of foreign currency received as a part of the common clearing mechanism. 

• However, the Respondent rejected the refund claim filed by the petitioner on the ground of non-submission of FIRCs under Rule 89(2)(c) of the CGST Rules. 

• Aggrieved by the order, the Petitioner filed an appeal before the Hon’ble High Court.

2. Relevant Legal Extract

Relevant legal extract is reiterated below for ready reference:

1. Extract of Circular No. 125/44/2019 is reiterated below:

“4. The following modalities shall be followed for all refund applications filed in FORM GST RFD-01 on the common portal with effect from 26.09.2019:

a. FORM GST RFD-01 shall be filled on the common portal by an applicant seeking a refund under any of the categories mentioned above. This shall entail filing of statements/ declarations/ undertakings which are part of FORM GST RFD-01 itself, and also uploading of other documents/invoices which shall be required to be provided by the applicant for processing of the refund claim. A comprehensive list of such documents is provided at Annexure-A, and it is clarified that no other document needs to be provided by the applicant at the stage of filing the refund application. The facility of uploading these other documents/invoices shall be available on the common portal, where four documents, each of a maximum of SMB, may be uploaded along with the refund application. Neither the refund application in FORM GST RFD-01 nor any of the supporting documents shall be required to be physically submitted to the office of the jurisdictional proper officer.

…”

3. Contention of the Petitioner

The Petitioner contended that:

• Foreign currency is received on a net-off basis in terms of the approval accorded by the RBI to its common clearing mechanism, and the Chartered Accountant Certificates.

• Further, the refund is admissible even in case of receipt of foreign remittances on a net-off basis.

• The petitioner also furnished the certificate from the Bank certifying that the petitioner had received the convertible foreign exchange equivalent after netting off on a pan-India level and that the said amount included receipts towards exported invoices.

• The petitioner has fulfilled all the conditions for eligibility of the refund claim, and therefore, the refund can’t be rejected on the ground of procedure.

• The refund application is not rejected on the ground of non-fulfilment of substantial conditions under the law. The only ground is that the petitioner failed to produce the FIRCs. 

• Therefore, the refund application can’t be rejected only on technical and procedural grounds, relying upon the Circular No. 125/44/2019 issued by the CBIC. 

• If the petitioner had received the entire consideration and then remitted the part of the same outside India, and in such circumstances, the respondents would not have any objections, as the FIRC in such cases would have been received.

• Therefore, the impugned order rejecting the refund claimed by the petitioner by literal reading of the Circular No. 125/44/2019 dated 18.11.2019 issued by the CBIC is liable to be quashed and set aside, and the respondent may be directed to process the refund application of the petitioner.

4. Contention of the Respondent

The Respondent contended that:

• The refund application is rejected, relying mainly on the Circular No. 125/44/2019 issued by the CBIC, under which the petitioner was required to enclose the FIRC with the refund claim. 

• The Petitioner has not taken cognizance of the essential condition and filed the refund claim of the huge amount without complete documents, and therefore, the refund claim was rightly rejected.

• Further, the Appellate Authority has taken into consideration the documents and the submissions made by the petitioner, and, thereafter, considering the same, has passed the detailed reasoned order to reject the refund claim.

5. Analysis and Findings by the Hon’ble High Court

The Hon’ble High Court has made the  following analysis:

• The RBI has granted consolidation through the clearing system of the pan-India Basis for both Sea and Air Cargo. 

• As per Annexure-A of the Circular, in case of export of service, statement-3 under Rule 89(4) of the CGST Rules, along with supporting documents to be additionally uploaded, containing the BRC/FIRC in case of the export of services.

• The petitioner submitted Statement-3, giving all invoice details and the BRC details.

• The respondent rejected the aforesaid information and the details and documents submitted by the petitioner and only on the ground that the petitioner has not filed FIRC, and rejected the refund claim of the petitioner.

• The Hon’ble Supreme Court in the case ofHon’ble High Court held relied on the judgment of Hon’ble Supreme Court in the case of Union of India Versus Mangal Textile Mills Private Limited reported in 2011 (269) E.L.T. 3 (S.C.) wherein it was held that The Certificate issued by the CA is required to be considered by the Authority as an authentic document. When the CA has issued the Certificate, the respondent-Authorities are bound to take into consideration the same. As per the certificate, the petitioner has received the convertible foreign exchange for the export of the services. Therefore, only on the ground that the petitioner has not submitted the FIRC as required by the Circular No. 125/44/2019 issued by the CBIC, the respondent Authorities were not justified in rejecting the refund claim. has held that:
  
  • The Certificate issued by the CA is required to be considered by the Authority as an authentic document.
  • When the CA has issued the Certificate, the respondent-Authorities are bound to take into consideration the same. 

• As per the certificate, the petitioner has received the convertible foreign exchange for the export of the services.

• Therefore, only on the ground that the petitioner has not submitted the FIRC as required by the Circular No. 125/44/2019 issued by the CBIC, the respondent Authorities were not justified in rejecting the refund claim.

6. Final Order

Hon’ble High Court held that:

• The impugned order is hereby quashed and set aside.

• The respondent-Authorities are directed to process the refund claim under law without insisting on FIRC and accepting the Certificate issued by the CA as per the in-principal approval granted by the RBI to the petitioner for realisation of foreign exchange for export of services