2025 (6) TMI 1841 - HC - GST

Refund of unutilized ITC - requirement of FIRCs - petitioner is unable to access Form GST RFD-08 on the GST common portal and only the Annexure to GST RFD-08 is available - Can CA Certificate issued by the Chartered Accountant be considered by the Authority as an authentic document - HELD THAT - The Hon ble Supreme Court in case of Union of India Versus Mangal Textile Mills Private Limited 2010 (2) TMI 699 - SUPREME COURT has held that the Certificate issued by the Chartered Accountant is required to be considered by the Authority as an authentic document and in the facts of the case when the Chartered Accountant has issued the Certificate the respondent-Authorities bound to take into consideration the same. On perusal of the Certificate issued by the Chartered Accountant it is clear that the petitioner has received the convertible foreign exchange for the export of the services and therefore only on the ground that the petitioner has 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. Conclusion - The respondent-Authorities are directed to process the refund claim of the petitioner filed on 16th February 2023 in accordance with law without insisting for FIRC as required by the Circular No. 125/44/2019 and accepting the Certificate issued by the Chartered Accountant for receipt of the net foreign exchange received by the petitioner as per the in-principal approval granted by the Reserve Bank of India to the petitioner for realisation of foreign exchange for export of services. The impugned order dated 10.06.2024 is hereby quashed and set aside - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) Whether the petitioner, engaged in export of services and operating under a Reserve Bank of India (RBI) approved common clearing mechanism for receipt of foreign exchange on a net basis, is entitled to claim refund of unutilized Input Tax Credit (ITC) under the GST law despite not submitting Foreign Inward Remittance Certificates (FIRCs) as required by the Central Board of Indirect Taxes and Customs (CBIC) Circular No. 125/44/2019;

(b) Whether the rejection of the petitioner's refund claim on procedural grounds, specifically for non-submission of FIRCs, is legally sustainable when the petitioner has submitted alternative evidence in the form of Chartered Accountant (CA) certificates certifying receipt of convertible foreign exchange in accordance with RBI approval;

(c) The validity and legality of the impugned order rejecting the refund claim on the ground of non-submission of FIRC documents;

(d) The applicability and interpretation of the CBIC Circular No. 125/44/2019 and related provisions of the Central Goods and Services Tax Act, 2017 (CGST Act), Integrated Goods and Services Tax Act, 2017 (IGST Act), and CGST Rules, particularly Rule 89, in the context of export of services refund claims involving netting off of foreign exchange receipts and payments under RBI approval;

(e) The extent to which a CA certificate can substitute for FIRC in establishing receipt of foreign exchange for export of services for the purpose of refund claims under GST law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Entitlement to refund of unutilized ITC on export of services under RBI approved netting off mechanism despite non-submission of FIRC

Relevant legal framework and precedents: The refund claim is governed by Section 54 of the CGST Act read with Section 9 of the IGST Act and Rule 89 of the CGST Rules. Export of services is defined under Section 2(6) of the IGST Act, which requires receipt of payment in convertible foreign exchange. The CBIC Circular No. 125/44/2019 mandates submission of documents including FIRC/BRC for refund claims related to export of services. The Supreme Court precedent in Union of India v. Mangal Textile Mills Pvt. Ltd. (2011) establishes that CA certificates are authentic documents to be considered by authorities.

Court's interpretation and reasoning: The Court observed that the petitioner operates under an RBI-approved common clearing mechanism allowing netting off of foreign currency receipts and payments on a pan-India basis. The petitioner submitted CA certificates certifying receipt of convertible foreign exchange net of payables, in line with RBI approval. The Court noted that the petitioner complied with all substantive conditions for refund eligibility, and the only ground for rejection was non-submission of FIRCs as per the CBIC Circular. The Court held that the CA certificate is an authentic document and must be considered in lieu of FIRCs, especially given the unique clearing mechanism approved by RBI. The Court found that the petitioner did receive convertible foreign exchange and that the rejection on procedural grounds alone was unjustified.

Key evidence and findings: The petitioner submitted detailed refund application with all requisite documents including export turnover reconciliation, input tax credit statement, RBI approval letters, monthly CA certificates certifying net foreign exchange receipt, EEFC bank statements, and bank certificates confirming foreign exchange receipt. The petitioner also provided detailed reconciliations and explanations of the clearing mechanism. The respondent authorities rejected the claim solely due to absence of FIRCs, disregarding the CA certificates and bank confirmations.

Application of law to facts: The Court applied the statutory provisions and the CBIC Circular in context, interpreting the requirement of FIRC submission flexibly in light of the RBI-approved clearing mechanism. The Court emphasized that the substantial compliance and receipt of convertible foreign exchange were established by the CA certificates and bank confirmations. The Court held that the procedural requirement of FIRCs cannot override the substantive right to refund where adequate alternative proof is furnished.

Treatment of competing arguments: The respondents contended that the CBIC Circular mandates submission of FIRCs and absence thereof justifies rejection. The Court acknowledged this but held that rigid adherence to procedural formalities at the cost of denying substantive rights is not warranted. The Court relied on the Supreme Court precedent recognizing CA certificates as authentic evidence. The Court found the petitioner's failure to submit FIRCs was due to the nature of the RBI-approved netting off mechanism and not due to negligence or non-compliance.

Conclusions: The petitioner is entitled to refund of unutilized ITC despite non-submission of FIRCs because the CA certificates and bank confirmations sufficiently establish receipt of convertible foreign exchange as per RBI approval. The rejection on procedural grounds alone is unsustainable.

Issue (c): Legality and validity of the impugned order rejecting refund claim

Relevant legal framework: The impugned order was passed under Section 54 of the CGST Act and Rule 89 of the CGST Rules, and the appeal was under Section 107 of the CGST Act. The CBIC Circular No. 125/44/2019 governs procedural requirements for refund claims.

Court's interpretation and reasoning: The Court found the impugned order to be legally flawed as it rejected the refund claim solely on the ground of non-submission of FIRCs without appreciating the special RBI approval and the CA certificates submitted. The order failed to consider the substantial compliance and receipt of foreign exchange established by the petitioner. The Court held that the impugned order is liable to be quashed and set aside.

Key evidence and findings: The petitioner's detailed submissions, CA certificates, bank confirmations, and RBI approvals were disregarded in the impugned order. The order relied exclusively on the CBIC Circular's procedural requirement without considering the unique facts.

Application of law to facts: The Court applied principles of substantive justice and held that the procedural non-compliance cannot defeat the petitioner's statutory right to refund where the petitioner has furnished adequate alternative proof.

Treatment of competing arguments: The respondents' reliance on the CBIC Circular was found to be misplaced as the Circular cannot override statutory provisions and the facts of the case. The Court emphasized that the authorities must consider authentic alternative evidence.

Conclusions: The impugned order rejecting the refund claim is quashed and set aside.

Issue (d): Applicability and interpretation of CBIC Circular No. 125/44/2019 and related GST provisions

Relevant legal framework: CBIC Circular No. 125/44/2019 prescribes the procedure and documents required for refund claims including submission of FIRC/BRC for export of services. Section 54 of CGST Act and Rule 89 of CGST Rules govern refund claims.

Court's interpretation and reasoning: The Court acknowledged the Circular's procedural requirements but held that such requirements are directory and not mandatory to the extent that they would defeat substantive rights. The Court noted that the Circular does not expressly exclude alternative evidence such as CA certificates, especially in cases where the nature of the foreign exchange receipt is governed by special RBI approval. The Court interpreted the law to allow acceptance of CA certificates as sufficient proof of receipt of foreign exchange in such cases.

Key evidence and findings: The Circular mandates FIRC submission but the petitioner's unique RBI approval for netting off foreign exchange receipts and payments results in non-availability of FIRCs in conventional form. The petitioner submitted CA certificates and bank confirmations instead.

Application of law to facts: The Court balanced the procedural requirements with the realities of the petitioner's business model and RBI permissions, holding that procedural formalities cannot be applied rigidly to deny refund.

Treatment of competing arguments: Respondents urged strict adherence to the Circular, but the Court found that the Circular cannot be applied in a manner that negates the substantive right of refund where alternative authentic evidence is available.

Conclusions: The CBIC Circular's procedural requirements do not preclude acceptance of CA certificates as proof of foreign exchange receipt in cases involving RBI-approved netting off mechanisms.

Issue (e): Extent to which CA certificate can substitute FIRC for refund claims

Relevant legal framework and precedents: The Supreme Court in Union of India v. Mangal Textile Mills Pvt. Ltd. recognized CA certificates as authentic evidence. The GST law and CBIC Circular require FIRC but do not explicitly bar alternative evidence.

Court's interpretation and reasoning: The Court held that CA certificates issued after verification of books of accounts and underlying documents are reliable and authentic evidence of receipt of foreign exchange. Given the RBI approval permitting netting off, FIRCs may not be generated in the conventional manner. Therefore, the CA certificate can substitute for FIRC in such circumstances.

Key evidence and findings: The petitioner's CA certificate detailed verification of receivables and payables, underlying invoices, airway bills, and bank statements, certifying receipt of net foreign exchange.

Application of law to facts: The Court applied the principle of substantial justice and accepted CA certificates as adequate proof for refund claims.

Treatment of competing arguments: Respondents rejected CA certificates as insufficient, relying on the Circular's requirement of FIRCs. The Court disagreed, emphasizing the authenticity and sufficiency of CA certificates in the facts of the case.

Conclusions: CA certificates can validly substitute for FIRCs in refund claims where the petitioner operates under RBI-approved netting off mechanisms.

3. SIGNIFICANT HOLDINGS

The Court held:

"The Certificate issued by the Chartered Accountant is required to be considered by the Authority as an authentic document and in the facts of the case when the Chartered Accountant has issued the Certificate, the respondent-Authorities [are] bound to take into consideration the same."

"Only on the ground that the petitioner has 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."

"The impugned order dated 10.06.2024 is hereby quashed and set aside. The respondent-Authorities are directed to process the refund claim of the petitioner filed on 16th February, 2023 in accordance with law without insisting for FIRC as required by the Circular No. 125/44/2019 and accepting the Certificate issued by the Chartered Accountant for receipt of the net foreign exchange received by the petitioner as per the in-principal approval granted by the Reserve Bank of India."

Core principles established include:

(i) Procedural requirements under CBIC Circulars for submission of FIRCs in export of services refund claims are not mandatory to the extent that they can override substantive rights where alternative authentic evidence is furnished;

(ii) CA certificates issued after due verification are authentic evidence of receipt of foreign exchange and must be considered by authorities;

(iii) Refund claims under GST law must be adjudicated with due regard to the commercial realities and special regulatory approvals such as RBI's approval for netting off foreign exchange receipts and payments;

(iv) Authorities cannot reject refund claims solely on technical or procedural grounds when substantive compliance and receipt of convertible foreign exchange are established.

Final determinations:

The petitioner's refund claim of Rs. 1,82,99,406/- for the period April to June 2021 is to be processed and granted in accordance with law, without insisting on FIRCs, relying on the CA certificates and bank confirmations submitted. The impugned order rejecting the refund claim is quashed and set aside.