Tax Vista Your weekly tax recap Edn. 267 - 22nd December 2025 Kasi Viswanathan V

 

 

Interest on Delayed IGST export refunds - Customs or GST officers?

The exporter had filed 119 shipping bills claiming duty drawback during the period 13.06.2019 to 21.08.2020 and 131 shipping bills claiming refund of IGST paid on exports during the period 01.04.2019 to 29.06.2020. Both the refunds were kept in abeyance for verification of the bona fides of the exporter in terms of Board Circular No. 16/2019-Customs dated 17.06.2019 read with Circular No. 131/1/2020-GST dated 23.01.2020. Upon completion of verification, the refunds were sanctioned on 09.09.2020.

 

The exporter thereafter claimed interest on delay in sanction of the refunds by filing two separate applications. The adjudicating authority, by a common order dated 01.12.2020, rejected the claim for interest on the ground that the delay was occasioned due to verification in terms of Rule 10 of the Customs Drawback Rules, 2017, which was based on statutory provisions, and hence no interest was payable. This order was upheld by the Commissioner of Customs (Appeals) vide order dated 31.03.2022.

 

The exporter filed a revision petition, and the revisional authority, vide order dated 13.09.2023, granted interest on delayed drawback, holding that Rule 10 does not prohibit exporters from being entitled to interest where delay occurs during the verification process. However, insofar as interest on delayed refund of IGST was concerned, the revisional authority held that the provisions of the GST Act were not exercisable in revision proceedings under section 35EE of the Central Excise Act (Section 129DD of Customs Act).

 

The petitioner challenged the revisional order through a writ petition, there being no further statutory appeal. The Court noted that the objection regarding lack of jurisdiction to decide interest on IGST refund was raised for the first time in the revisional order, despite the petitioner having diligently pursued the issue of interest on IGST refund before Customs authorities at every stage. Taking note of the petitioner's submission to approach the appellate authority under the GST Act against the original adjudication order dated 01.12.2020, the Court permitted the petitioner to file such appeal in respect of rejection of interest on IGST refund and directed the GST appellate authority to consider and dispose of the appeal on its own merits and in accordance with law, without adverting to the issue of limitation.

While the decision to send it back to first appeal stage is based on the relief sought, the larger question remains as to against whom an application for interest on delayed refund of IGST on exports would lie - Customs proper officer or GST proper officer. Unlike IGST on import of goods, where interpretational issues arise due to the proviso to Section 5(1) of the IGST Act vs. section 3(7) of the Customs Tariff Act, there is no such ambiguity in respect of IGST on export of goods, as the levy is clearly under the IGST Act.

 

However, refunds of IGST on exports are processed through the Customs system, and withholding, if any, from such refunds is done by the proper officer of integrated tax at the Customs station, as clarified in paragraph 8 of Instruction No. 15/2017-Customs dated 09.10.2017, based on inputs or requests received from the respective GST jurisdictional Commissioner. While it is true that a revisional authority under Customs law cannot decide matters arising under the GST Act, it is equally important to note that GST authorities are likely to take a stand that the refund process is handled by Customs and, therefore, they have no role either in granting the refund or interest thereon.

 

This conflict as to who is responsible is evident in practice on many occasions. For illustration, refer to para 53 of the Venus Jewels (2024-VIL-326-BOM), the Bombay High Court recorded the contrary stands taken by the authorities and observed that it was clear that both authorities were disowning their obligation or authority to refund IGST while not disputing the entitlement of the assessee, terming the situation as disturbing and unacceptable and holding that internal or departmental conflicts cannot prejudice the assessee.

 

In an earlier matter seeking interest under section 56 on delayed refund of IGST for the period commencing from the expiry of sixty days from the date of filing of the shipping bill until the date of grant of refund, the petitioner had directly approached the High Court in Anita Agarwal (2024-VIL-1218-BOM). It is pertinent to note that although the Delhi GST authorities were initially included as respondents in the said proceedings, they were subsequently deleted at the request of the petitioner, indicating a possible view that GST officers may not be the proper officers for deciding such matters. Perhaps, deletion may be for a simple reason to avoid unnecessary conflict on jurisdiction of the Bombay High Court.

 

Coming back to the present case, although the matter has been sent back to the GST appellate authority at the instance of the petitioner, it is important to note that there is no underlying adjudication by GST authorities on the issue of interest on delayed IGST refund. This combined with above explained prevalent conflict makes it likely that the exporter may once again be compelled to approach the Court. The only way to avoid such litigation is for export industry associations and trade bodies to make suitable representations to CBIC seeking issuance of clarification and guidelines for dealing with claims of interest on delayed refund of IGST on exports [2025-VIL-1290-BOM].

 

HC to consider realization requirements for exports without consideration

Section 7(1)(a) read with Schedule I of the CGST Act, 2017 deems transactions between related persons as supply even when made without consideration. Section 16 of the IGST Act provides that export of services is a zero-rated supply. Further, Section 2(6)(iv) of the IGST Act stipulates that, for a supply to qualify as export of services, the consideration must be realized in convertible foreign exchange. This gives rise to an issue - where there is no consideration in the first place, how can such consideration be realized and consequently, how can the condition of export of services be fulfilled?

 

In the present matter, M/s DHL India was providing services to DHL International GmbH, Germany under a "network agreement", pursuant to which their respective clients were provided services in India and Germany without any payment of consideration between the two companies. The Petitioner was paying taxes on such services. Subsequently, the petitioner filed a writ petition seeking refund of excess tax paid on the ground that the payment was made under a mistake of law, contending that the services provided to DHL Germany qualified as zero-rated supply even if made without consideration. (The Court orders at this stage do not capture reasoning behind this position. A plausible argument is that non-realization of consideration is inherently a direct consequence of the absence of consideration itself. Therefore, the condition under section 2(6)(iv) should be deemed as complied with, similar to deeming fiction provided in the first proviso to Rule 37 of the CGST Rules)

 

Petitioner further submitted that if there is incongruity in the provisions, the same deserves to be interpreted by the Court. Refund claims were pursued before the Bombay High Court and the Delhi High Court. The Bombay High Court declined to entertain the writ petition as no refund claim had been filed prior to seeking a writ of mandamus. The petitioner was permitted to file a refund claim in accordance with law. It gave directions that the appropriate authority should dispose of refund application (if any filed by the Petitioner) in accordance with law and on its own merits within a reasonable period of say three months of its receipt after providing an opportunity of personal hearing.

 

In contrast, the Delhi High Court took the view that the issue of refund would arise only after the initial question of whether there was "excess payment" is decided. The Court, therefore, issued notice to the respondents on the core issue of interpretation, namely whether such transactions qualify as export of services. Prima facie, the Court observed that the relevant provisions would have to be harmoniously interpreted. Noting that similar issues are pending before various courts, the Delhi High Court directed CBIC to examine the matter and place its stand before the Court either by way of an affidavit or to issue clarification, if it felt necessary. This issue is likely to see significant development in the coming year. [2025-VIL-1286-BOM-CU & 2025-VIL-1288-DEL].

 

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)