Kuehne Plus Nagel Private Limited Vs Union of India & Ors. [R/SPECIAL CIVIL APPLICATION NO. 13427 of 2024]
BRIEF FACTS OF THE CASE
- The Petitioner is engaged in the business of providing services with regard to international and domestic transportation of customer's goods, clearance, warehousing and allied services to its group entities outside India. The services supplied by the Petitioner qualify as 'export of services'.
- The petitioner had receivables of export proceeds from its group entities across the globe and had payables of forex payments to its group entities across the globe. Accordingly, the Petitioner obtained an approval from the Reserve Bank of India ('RBI') to receive foreign currency on export after netting off any payment in foreign currency monthly subject to certain conditions which were duly complied with by the Petitioner.
- Thereafter, the Petitioner filed a refund application under Section 54 of the Central Goods and Services Tax Act, 2017, seeking refund of unutilized Input Tax Credit (ITC) accumulated on account of zero-rated supply of services exported without payment of Integrated Goods and Services Tax (IGST), in terms of Rule 89(4) of the Central Goods and Services Tax Rules, 2017.However, the said application was rejected by the GSTN portal on the sole ground that the transferor and transferee entities were registered in different States (Goa and Maharashtra), and that the portal architecture did not permit such inter-state ITC transfers, even in cases of statutory amalgamations.
- The refund claim was rejected by the respondent-GST authorities on the sole ground that the Petitioner had not furnished the Foreign Inward Remittance Certificate (FIRC) with regard to the amounts not received on account of the netting off mechanism as permitted by the RBI.
- The Petitioner, however, had furnished alternate and substantial evidence to establish receipt of consideration in convertible foreign exchange, including:
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- A certificate issued by a Chartered Accountant (CA) certifying the actual receipt of convertible foreign exchange by the Petitioner against the exported services; and
- A copy of the approval issued by RBI permitting the Petitioner to utilise a common clearing mechanism for receipt and payment of foreign exchange through an internationally recognised platform.
- The factum of export of services by the Petitioner was not disputed by the department, and there was no adverse finding on the receipt of consideration in foreign exchange. The rejection of the refund was, therefore, based purely on the procedural ground of non-submission of FIRC, despite the existence of equally valid and reliable documentary proof of foreign exchange realisation.
KEY OBSERVATIONS OF THE HON'BLE GUJARAT HIGH COURT
- The Hon'ble High Court examined the documents submitted by the Petitioner for claiming refund of unutilized credit and held that non-submission of FIRC cannot be a ground to deny the refund claim filed by the Petitioner especially when substantive documents such as CA certificates, extract of bank statements reflecting the receipt of amount and approval from RBI has been submitted by them.
- The Court also acknowledged the fact that netting off of foreign payments against foreign receipts is in line with the in-principle approval/permission granted to the Petitioner by RBI and hence, a procedural compliance [non-submission of FIRC] cannot restrict a larger substantive right to claim refund of unutilized credit.
AURTUS COMMENTS
- It is a well-established legal position that in matters concerning the receipt or non-receipt of foreign currency, the RBI is the nodal authority, and other regulatory bodies are not empowered to take a divergent view on such issues. Netting off, when approved by RBI is a valid mode of settlement. A similar view was upheld by CESTAT in PSA Sical Terminals Ltd. vs Commissioner of Customs [2004 (165) ELT 109 (TRI-CHENNAI)] . The principle is also reflected in certain specific provisions under the GST law, for example under Rule 96B(1) of the CGST Rules, 2017, and Section 16(3) of the IGST Act, 2017, the benefit of export (such as refund of IGST or unutilized input tax credit) cannot be denied if the foreign exchange is received within the period stipulated under FEMA, or within such extended period as may be allowed by the RBI.
- The objective behind the netting off mechanism is to eliminate the procedural and financial burden of first receiving foreign exchange and then remitting it back to the same counterparty. Netting off achieves the same commercial outcome while avoiding unnecessary costs associated with inward and outward remittances, foreign exchange conversion losses, and administrative complexities. Once such netting off is approved by the RBI, it is deemed equivalent to both the receipt and payment of foreign exchange.
- Another important aspect of the ruling is that when alternative evidence is available, the focus should be on substantive statutory compliance, and minor procedural lapses should not result in denial of benefits. This is especially relevant when the RBI has granted approval for netting off, and there is no violation of the provisions under the FEMA. Tax authorities should adopt a holistic approach, recognizing material compliance with statutory requirements. Technical deficiencies, in the absence of substantive non-compliance, should not be grounds for rejecting legitimate claims. Authorities must avoid a rigid, mechanical interpretation of rules while processing refund claims.
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